Mrs. James plans to invest in one of two investment alternatives having the same risk. Investment 1 has a before-tax return of 10% and the income from investment 1 would be taxed at Mrs. James' 35% regular tax rate. Investment 2 has a before-tax return of 8% and the income from investment 2 would be taxed at a 15% preferential rate. Which of the following statements regarding these investment choices is false?

Question

Quizplus · Accepted Answer

The after-tax return for Investment 1 is calculated as 10% * (1 - 0.35) = 6.5%, and for Investment 2 it is 8% * (1 - 0.15) = 6.8%. Therefore, Investment 2 has a higher after-tax return despite its lower before-tax return due to the lower tax rate, making statement D false.

Mrs James Plans to Invest in One of Two Investment