Reston, Inc., has asked your corporation, Pruro, Inc., for financial assistance. As a long-time customer of Reston,

Question:

Reston, Inc., has asked your corporation, Pruro, Inc., for financial assistance. As a long-time customer of Reston, your firm has decided to give that assistance. The question you are debating is whether Pruro should take Reston stock with a 5% annual or a promissory note paying 5% annual interest. Assuming payment is guaranteed and the dollar amounts for annual interest and income are identical, which option will result in greater after-tax income for the first year?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...