The correct answer is B. $40,722.
To calculate the value of Adam's investment after 10 years, we need to consider the annual dividends and the reinvestment of those dividends.
First, let's calculate the annual dividends Adam receives. Since the stock pays annual dividends equal to 5% of his investment, the annual dividend amount would be 5% of $25,000, which is $1,250.
Next, we need to calculate the after-tax dividends. Adam's marginal ordinary tax rate is 15%, so he would pay 15% in taxes on the dividends. Therefore, the after-tax dividend amount would be $1,250 minus 15% of $1,250, which is $1,062.50.
Now, let's calculate the value of Adam's investment after 10 years. Each year, he reinvests the after-tax dividend amount of $1,062.50. This means that his investment grows at a rate of 5% per year.
To calculate the future value of his investment, we can use the formula for compound interest: future value = present value * (1 + interest rate)^n, where n is the number of years.
Using this formula, the future value of Adam's investment after 10 years would be $25,000 * (1 + 0.05)^10 = $25,000 * 1.62889 = $40,722.
Therefore, the value of Adam's investment after 10 years, assuming he reinvests his after-tax dividends each year, would be $40,722.