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What is the break-even corporate tax rate

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Reference no: EM132602028

Question - A corporation can earn 7.50% if it invests in municipal bonds. The corporation can also earn 8.15% (before-tax) by investing in preferred stock. Assume that the two investments have equal risk. What is the break-even corporate tax rate that makes the corporation indifferent between the two investments? Assume a 50.00% dividend exclusion for tax on dividends. (Do not round your intermediate answer and round your final answer to two decimal places.)

a. 28.74%

b. 27.89%

c. 35.28%

d. 15.95%

e. 31.02%

Reference no: EM132602028

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