Arash Corporation is trying to choose between three alternative investments. The three securities that the company is considering are as follows:
• Tax-free municipal bonds with a return of 7.30%.
• Ray Corporation bonds with a return of 10.90%.
• Rez Corp. preferred stock with a return of 11.50%.
The company’s tax rate is 25% and dividend exclusion rate is 70%. What is the after-tax return on the best investment alternative? Show all work.