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Question - Rock Corporation can (1) build a new plant that should generate a before-tax return of 10.00%, or (2) invest the same funds in the preferred stock of Alabama Utility Company (AUC), which should provide Rock Corporation with a before-tax return of 8.50%, all in the form of dividends. Assume that Rock Corporation 's marginal tax rate is 20.00%, and that 60.00% of dividends received are excluded from taxable income. If the plant project is divisible into small increments, and if the two investments are equally risky, what combination of these two possibilities will maximize Rock Corporation 's effective return on the money invested? (Round your final answer to two decimal places.)
a. 60% in the project; 40% in AUC.
b.60% in AUC ; 40% in the project.
c. 50% in each.
d. All in AUC preferred stock.
e. All in the plant project.
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