Nitro, Inc. is a C Corporation with 21% marginal tax rate. Nitro is considering investing in City of Olathe bonds, which currently pay a 6% return (equivalent taxable bonds are paying 7.5%). Compute the implicit tax rate on the City of Olathe bonds, and indicate which bonds (tax-free or taxable) Nitro should invest in.
Implicit rate is 20%; Nitro Inc. should invest in the tax-free bonds.
Implicit rate is 25%; Nitro Inc. should invest in the taxable bonds.
Implicit rate is 25%; Nitro Inc. should invest in the tax-free bonds.
Implicit rate is 20%; Nitro Inc. should invest in the taxable bonds.
