EBK FUNDAMENTALS OF CORPORATE FINANCE
9th Edition
ISBN: 9781260049237
Author: BREALEY
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 17, Problem 24QP
a)
Summary Introduction
To compute: The net returns of each stocks if pension fund does not pay taxes, company pays 35% tax and a person with effective tax rate on dividend’s 15% and 10% on
b)
Summary Introduction
To compute: The selling price of stock A, B and C.
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The expected pretax return on three stocks is divided between dividends and capital gains in the following way:
Stock
Expected Dividend
Expected Capital Gain
A
$0
$10
B
5
5
C
10
0
Required:
a. If each stock is priced at $115, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains?
Stock Pension investor corporation Individual
A 8.70 % 6.86 % __________%
B 8.70 % ___________% ___________%
C 8.70 % __________% __________%
b. Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks…
The expected pretax return on three stocks is divided between dividends and capital gains in the following way:
Stock
Expected Dividend
Expected Capital Gain
A
$0
$10
B
5
5
C
10
0
Required:
a. If each stock is priced at $110, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains?
b. Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an after-tax return of 8%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity.
Req A
Req B
If each stock is priced at $110, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective…
The expected pretax return on three stocks is divided between dividends and capital gains in
the following way:
Stock Expected Dividend Expected Capital Gain
0
A
B
C
A. If each stock is priced at $195, what are the expected net percentage returns on each stock
to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective
tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective
tax rate of 10% on dividends and 5% on capital gains?
10
5
10
5
0
B. Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are
priced to yield an after-tax return of 10%, what would A,
Chapter 17 Solutions
EBK FUNDAMENTALS OF CORPORATE FINANCE
Ch. 17 - Prob. 1QPCh. 17 - Prob. 2QPCh. 17 - Prob. 3QPCh. 17 - Prob. 4QPCh. 17 - Prob. 5QPCh. 17 - Prob. 6QPCh. 17 - Prob. 7QPCh. 17 - Prob. 8QPCh. 17 - Prob. 9QPCh. 17 - Prob. 10QP
Ch. 17 - Prob. 11QPCh. 17 - Prob. 12QPCh. 17 - Prob. 13QPCh. 17 - Prob. 14QPCh. 17 - Prob. 15QPCh. 17 - Prob. 16QPCh. 17 - Prob. 17QPCh. 17 - Prob. 18QPCh. 17 - Prob. 19QPCh. 17 - Prob. 20QPCh. 17 - Prob. 21QPCh. 17 - Prob. 22QPCh. 17 - Prob. 23QPCh. 17 - Prob. 24QPCh. 17 - Prob. 26QPCh. 17 - Prob. 27QPCh. 17 - Prob. 28QPCh. 17 - Prob. 29QPCh. 17 - Prob. 30QPCh. 17 - Prob. 31QP
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