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A corporation has an average tax rate of 25% and a marginal tax rate of 39%. The corporation can invest in a tax-free project with an expected before-tax return of 6.8% or in a taxable project with an expected before-tax return of 10%. The corporation should: 1) _______ A) invest in the tax-free project because the after-tax return is greater. B) invest in the taxable project because the after-tax return is greater. C) be indifferent between the two investments because the after-tax returns are the same. D) invest in the taxable project because the return is greater.

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