The expected pretax return on three stocks Is divided between dividends and capital galns in the following way: Еxpected Capital Expected Stock Dividend Gain A $0 $10 10 Required: a. If each stock Is priced at $160, what are the expected net percentage returns on each stock to (1) a penslon fund that does not pay taxes, (II) a corporation paylng tax at 21% (the effective tax rate on divldends recelved by corporations Is 6.3%), and (III) an Individual with an effective tax rate of 15% on dividends and 10% on capital galns? b. Suppose that Investors pay 50% tax on dividends and 20% tax on capital galns. If stocks are priced to yleld an after-tax return of 8%, what would A, B. and Ceach sell for? Assume the expected dividend Is a level perpetulty.
The expected pretax return on three stocks Is divided between dividends and capital galns in the following way: Еxpected Capital Expected Stock Dividend Gain A $0 $10 10 Required: a. If each stock Is priced at $160, what are the expected net percentage returns on each stock to (1) a penslon fund that does not pay taxes, (II) a corporation paylng tax at 21% (the effective tax rate on divldends recelved by corporations Is 6.3%), and (III) an Individual with an effective tax rate of 15% on dividends and 10% on capital galns? b. Suppose that Investors pay 50% tax on dividends and 20% tax on capital galns. If stocks are priced to yleld an after-tax return of 8%, what would A, B. and Ceach sell for? Assume the expected dividend Is a level perpetulty.
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 19P
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