What personal tax rate would make investors equally willing

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Problem 1: After completing its capital spending for the year, Carlson Manufacturing has $1,000 of extra cash. Carlson's managers must choose between investing the cash in Treasury bonds that yield 7 percent or paying the cash out to investors who would invest in the bonds themselves. If the corporate tax rate is 21 percent, what personal tax rate would make the investors equally willing to receive the dividend or to let Carlson invest the money? (Hint: Cash flow from the Treasury bonds has to be taxed as well.)

Option 1:
22%

Option 2:
20%

Option 3:
24%

Option 4:
23%

Option 5:
21%

Reference no: EM132970366

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