A corporation can earn 7.50% if it invests in municipal bonds. The corporation can also earn 8.20% (before-tax) by investing in preferred stock. Assume that the two investments have equal risk. What is the break-even corporate tax rate that makes the corporation indifferent between the two investments? Assume a 70.00% dividend exclusion for tax on dividends. (Do not round your intermediate answer and round your final answer to two decimal places.)
A. 28.74%
B. 31.02%
C. 28.46%
D. 27.89%
E. 35.28%
Answer: C
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