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Subject Tax Accounting Maurice is currently considering investing in a high dividend yield stock with no growth...

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Accounting

Subject Tax Accounting

Maurice is currently considering investing in a high dividendyield stock with no growth potential that pays a 6% dividend yieldor bonds issued by The Coca Cola company that pay 8%.If Maurice'sordinary tax rate is 25% and his dividend tax rate is 15%, whichinvestment should he choose? Which investment should he choose ifhis ordinary tax rate is 30%. At what ordinary tax rate wouls he beindifferent to the stock or to the bond? What strategy is thisdecision based upon?

Answer & Explanation Solved by verified expert
3.8 Ratings (729 Votes)
1Assuming same amount of money invested in both stock or bond Aftertax return on stock6115 510 Aftertax return on Coca Cola Bonds8125 600 He should choose the Coca Cola bond for it returns the greater aftertax    See Answer
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Subject Tax AccountingMaurice is currently considering investing in a high dividendyield stock with no growth potential that pays a 6% dividend yieldor bonds issued by The Coca Cola company that pay 8%.If Maurice'sordinary tax rate is 25% and his dividend tax rate is 15%, whichinvestment should he choose? Which investment should he choose ifhis ordinary tax rate is 30%. At what ordinary tax rate wouls he beindifferent to the stock or to the bond? What strategy is thisdecision based upon?

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