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chapter 10 question 1 Assume an investor can earn 0.15 before tax and 0.12 after tax. A corporation can earn 0.14 after corporate tax. It has $100 available for investment. The tax rate on dividends and capital gains is 0.15. If the corporation retains for 15 years and then pays a dividend the investor nets $__________. If the corporation pays an immediate dividend, the investor will have (after 15 years) $_________

chapter 10 question 1 Assume an investor can earn 0.15 before tax and 0.12 after tax. A corporation can earn 0.14 after corporate tax. It has $100 available for investment. The tax rate on dividends and capital gains is 0.15. If the corporation retains for 15 years and then pays a dividend the investor nets $__________. If the corporation pays an immediate dividend, the investor will have (after 15 years) $_________

Quickbooks Online Accounting
Quickbooks Online Accounting
3rd Edition
ISBN:9780357391693
Author:Owen
Publisher:Owen
Chapter8: Budgets And Bank Reconciliations
Section: Chapter Questions
Problem 3.3C
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chapter 10 question 1 Assume an investor can earn 0.15 before tax and 0.12 after tax. A corporation can earn 0.14 after corporate tax. It has $100 available for investment.

The tax rate on dividends and capital gains is 0.15.

  1. If the corporation retains for 15 years and then pays a dividend the investor nets $__________.
  2. If the corporation pays an immediate dividend, the investor will have (after 15 years) $_________
A. Week 5 Assignment A Bookshelf - The Capital Budgetin X d VitalSource Bookshelf: The Capita X b My Questions | bartleby + A online.vitalsource.com/#/books/9781135656232/cfi/6/36!/4/170/2@0.00:0 A < 10. Distribution Polic... Problems Go to 10. Distribution Policy and Capital Budgeting 1. Assume an investor can earn 0.15 before tax and 0.12 after tax. A corporation can earn 0.14 after corporate tax. It has $100 available for investment. The tax rate on dividends and capital gains is 0.15. a. If the corporation retains for 15 years and then pays a dividend the investor nets $ b. If the corporation pays an immediate dividend, the investor will have (after 15 years) $ earnings 2. (Continuation of problem 1) Now assume the investor has $1,000. What minimum return does the corporation paying an annual dividend have to earn to justify making the investment? 3. (Continuation of problem 2) Investment: new capital _percent. Share repurchase versus real a. If the investor invests $1,000 in the market, the investor will have each year $ b. If the investor invests $1,000 in the corporation that can earn 0.14, the investor will have each year a dividend (after tax) of investment A different required return 4. (Continuation of problem 3) Define M = P/C and Po = $110 and C = $10 (free cash flow per share) so that M = 11. Determine the return earned by the firm if it repurchases shares. 5. (Continuation of problem 4) Assume there are initially 1,000,000 shares outstanding. Assume the total stock value one year later is $110,000,000 and that the firm buys 10,000,000/110 = 90,909 shares at time 1. The price at time 1 will be $ 6. (Continuation of problems 4 and 5) Assume the $10,000,000 of free cash flow at time one is used to buy an investment that earns 0.10 instead of repurchasing shares. The value of a share at time one is $ Model Maintenance cap-ex per share. The capital structure Risk assumptions Bibliography The derivation of 1/(M-1) Diamond, D. and R. Verrecchia, "Disclosure, Liquidity, and the Cost of Equity Capital," Journal of Finance, 46, 1991, pp. 1325-60 Elton, Edwin, J., "Expected Return, Realized Return, and Asset Pricing Tests," Journal of Finance, 54 (4), 1999, pp. 1199-220. Fama, Eugene F. and Kenneth R. French, "The Cross-section of Expected Stock Returns," Journal of Finance, 47, 1992, pp. 427-65. Conclusions Problems Bibliography 7:58 PM P Type here to search a 10/24/2020 !!
Transcribed Image Text:A. Week 5 Assignment A Bookshelf - The Capital Budgetin X d VitalSource Bookshelf: The Capita X b My Questions | bartleby + A online.vitalsource.com/#/books/9781135656232/cfi/6/36!/4/170/2@0.00:0 A < 10. Distribution Polic... Problems Go to 10. Distribution Policy and Capital Budgeting 1. Assume an investor can earn 0.15 before tax and 0.12 after tax. A corporation can earn 0.14 after corporate tax. It has $100 available for investment. The tax rate on dividends and capital gains is 0.15. a. If the corporation retains for 15 years and then pays a dividend the investor nets $ b. If the corporation pays an immediate dividend, the investor will have (after 15 years) $ earnings 2. (Continuation of problem 1) Now assume the investor has $1,000. What minimum return does the corporation paying an annual dividend have to earn to justify making the investment? 3. (Continuation of problem 2) Investment: new capital _percent. Share repurchase versus real a. If the investor invests $1,000 in the market, the investor will have each year $ b. If the investor invests $1,000 in the corporation that can earn 0.14, the investor will have each year a dividend (after tax) of investment A different required return 4. (Continuation of problem 3) Define M = P/C and Po = $110 and C = $10 (free cash flow per share) so that M = 11. Determine the return earned by the firm if it repurchases shares. 5. (Continuation of problem 4) Assume there are initially 1,000,000 shares outstanding. Assume the total stock value one year later is $110,000,000 and that the firm buys 10,000,000/110 = 90,909 shares at time 1. The price at time 1 will be $ 6. (Continuation of problems 4 and 5) Assume the $10,000,000 of free cash flow at time one is used to buy an investment that earns 0.10 instead of repurchasing shares. The value of a share at time one is $ Model Maintenance cap-ex per share. The capital structure Risk assumptions Bibliography The derivation of 1/(M-1) Diamond, D. and R. Verrecchia, "Disclosure, Liquidity, and the Cost of Equity Capital," Journal of Finance, 46, 1991, pp. 1325-60 Elton, Edwin, J., "Expected Return, Realized Return, and Asset Pricing Tests," Journal of Finance, 54 (4), 1999, pp. 1199-220. Fama, Eugene F. and Kenneth R. French, "The Cross-section of Expected Stock Returns," Journal of Finance, 47, 1992, pp. 427-65. Conclusions Problems Bibliography 7:58 PM P Type here to search a 10/24/2020 !!
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