Problem:
The Shelton Corporation has some excess cash that it would like to invest in marketable securities for a long term hold. Its vice president of finance is considering three investments. (Shelton Corporation is in a 35percent tax bracket and the tax rate on dividends is 15 percent). Which one should he select based on after-tax return: (a)Treasury Bonds at a 7 percent yield; (b) corporate bonds at a 10 percent yield or (c) preferred stock at an 8 percent yield?