Which One of the Following Statements Is Correct About a Corporation

Multiple Choice

Which one of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend? Ignore any differences in risk.

A) The preferred stock should be selected because its after-tax yield is 0.17% higher.
B) The preferred stock should be selected because its after-tax yield is 0.80% higher.
C) The bond should be selected because its after-tax yield is 0.17% lower.
D) The bond should be selected because its after-tax yield is 1.3% higher.