Investors require an after-tax rate of return of 10% on thelr stock Investments. Assume that the tax rate on dividends is30% whlle capltal galns escape taxatlon. A firm wll pay a $3 per share dividend 1 year from now, after which the firm'sstock Is expected to sell at a price of $38.a. Find the current price of the stock. (Do not round Intermedlate calculatlons. Round your answer to 2 decimalplaces.)b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round Intermediate calculations.Enter your answer as a percent rounded to 2 decimal places.)c. Now suppose that the dividend wll be $9 per share. If the expected after-tax rate of return Is still 10% and Investorsstill expect the stock to sell at $38 In 1 year, at what price must the stock now sell? (Do not round Intermedlatecalculatlons. Round your answer to 2 decimal places.)d. What is the before-tax rate of return? (Do not round Intermedlate calculations. Enter your answer as a percentrounded to 2 decimal places.)e. Is this smaller or larger than your answer to part (b)?Current pricea.b. Before-tax rate of return%с.Priced. Before-tax rate of return%Is this smaller or larger than yourе.answer to part (b)?larger

“Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Investors require an after-tax rate of return of 10% on their stock Investments. Assume that the tax rate on dividends Is 30% whle capital galns escape taxatlon. A firm will pay a $3 per share dividend 1 year from now, after which the firm's stock Is expected to sell at a price of $38. a. Find the current price of the stock. (Do not round Intermedlate calculatlons. Round your answer to 2 declmal places.) b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round Intermedlate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Now suppose that the dividend willl be $9 per share. If the expected after-tax rate of return Is still 10% and Investors stll expect the stock to sell at $38 in 1 year, at what price must the stock now sell? (Do not round Intermedlate calculations. Round your answer to 2 decimal places.)

Investors require an after-tax rate of return of 10% on their stock Investments. Assume that the tax rate on dividends Is 30% whle capital galns escape taxatlon. A firm will pay a $3 per share dividend 1 year from now, after which the firm's stock Is expected to sell at a price of $38. a. Find the current price of the stock. (Do not round Intermedlate calculatlons. Round your answer to 2 declmal places.) b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round Intermedlate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. Now suppose that the dividend willl be $9 per share. If the expected after-tax rate of return Is still 10% and Investors stll expect the stock to sell at $38 in 1 year, at what price must the stock now sell? (Do not round Intermedlate calculations. Round your answer to 2 decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 6P

See similar textbooks