West Corporation has $50,000 that it plans to invest in marketable securities. The corporation is choosing...

West Corporation has $50,000 that it plans to invest in marketable securities. The corporation is choosing between the following three equally risky securities: Alachua County tax-free municipal bonds yielding 8.5%; Exxon Mobil bonds yielding 10.5%; and GM preferred stock with a dividend yield of 9.25%. West’s corporate tax rate is 15%. What is the after-tax return on the best investment alternative? Assume a 70% dividend exclusion for Tax on Dividends. (Assume the company chooses on the basis of after-tax returns.)

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Temporary excess cash can be invested in marketable securities. What are the characteristics of marketable securities?...

Temporary excess cash can be invested in marketable securities. What are the characteristics of marketable securities? If excess cash is projected to be continuing rather than temporary, are marketable securities the appropriate investment? Explain your answer.

At January 1, 2008, the marketable securities portfolio held by ABC Corporation consisted of the following...

At January 1, 2008, the marketable securities portfolio held by ABC Corporation consisted of the following investments: 1. 2,500 shares of BBB common stock purchased for $42 per share. 2. 1,500 shares of BCB common stock purchased for $60 per share. At December 31, 2008, the market values per share were: BBB $36 and BCB $66. The fair value adjustment at December 31, 2008 included: Debit: Marketable Securities, $6,000; Credit: Unrealized Holding Loss on Investment, $6,000 Debit: Unrealized Holding Loss...

Why do companies hold marketable securities?

Fargo Corporation has 500,000 shares of common stock currently outstanding. The company plans to sell 50,000...

Fargo Corporation has 500,000 shares of common stock currently outstanding. The company plans to sell 50,000 more shares of common stock to the existing shareholders through a rights offering. How many rights will it take to buy one share?

The Emporis Oil Corporation plans to invest $1 million in oil exploration. The corporation is considering...

The Emporis Oil Corporation plans to invest $1 million in oil exploration. The corporation is considering two plans to raise the money. Under Plan #1, 9% bonds would be issued at par. Under Plan #2, additional common shares would be sold at $20 per share. The corporation currently has 300,000 common shares outstanding, and total equity of $3,000,000. The corporation expects to earn $700,000 each year before bond interest and taxes. Calculate profit under each plan (assume a 50% tax...

An important part of the accounting for investments in marketable securities is the distinction between the...

An important part of the accounting for investments in marketable securities is the distinction between the various classifications of investments. Respond to the four topics below: When a company has excess cash, what types of securities may it invest in? Explain how the distinction between the various investment classifications is made. Discuss the distinction between realized and holding gains and losses on investments in debt and equity securities. Explain how a company discloses realized and holding gains and losses on...

Explain in summary of how an auditor audited cash and marketable securities.

True or False In the management of cash and marketable securities, the primary concern is profitability....

True or False In the management of cash and marketable securities, the primary concern is profitability. For most modern corporations, the more cash they have, the better off they are. Minimizing cash balances can improve overall corporate profitability. For most firms, the primary motive for holding cash is the transaction motive. Cash balances are usually determined by the amount of cash flowing through the firm on a yearly basis. A primary goal of cash management is to insure that the...

Which of the following assets is likely to be considered the most liquid? A. Marketable securities...

Which of the following assets is likely to be considered the most liquid? A. Marketable securities B. Net fixed assets C. Accounts payable D. Inventories

In the management of cash and marketable securities for a firm, why should the primary concern...

In the management of cash and marketable securities for a firm, why should the primary concern be for the safety and liquidity rather than maximization of profit? What about the management of other areas of the business? Discuss the balance between safety/liquidity and maximization of profit. Provide external resources to either support your thoughts above or to provide additional insight by bringing in an example from the corporate world.

Subjects