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Submitted by Asma on Fri, 2012-05-04 13:58
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 Corporate Finance Question from McGraw...

# Busi 530 Corporate Finance McGraw Hill Connect Home work 8

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 \$28

B 14 14

C 28 0

a.

If each stock is priced at \$100, what are the expected net returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35%, and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock Pension Investor

Corporation Individual

A % % %

B % % %

C % % %

b.

Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an 10% return after tax, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock P0

A \$

B

C

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The xxxxxxxx pretax xxxxxx on xxxxx xxxxxx xx divided between dividends xxx capital gains xx xxx following way:

xxxxxxxxxxxxxx

Dividend Expected

Capital xxxx

xx \$0 \$28

xx 14 x 14

xx 28 x x

xx

xx each stock xx priced xx \$100, what xxx xxx expected net xxxxxxx on each stock xx xxx x xxxxxxx fund that xxxx not pay xxxxxx xxxx a xxxxxxxxxxx paying tax xx xxxx and xxxxx an xxxxxxxxxx xxxx an xxxxxxxxx tax xxxx of xxx xx dividends and 10% xx xxxxxxx xxxxxx (Do not round intermediate calculations. Round xxxx xxxxxxx xx 2 xxxxxxx xxxxxxxx

xxxxxx Pension Investor

Corporation Individual

xxxxxxx x xxxxxx x 25.20 %

xxxxxxx % xxxxxx % 24.50 x

C 28.00 % xxxxxx % 23.80 %

b.

xxxxxxx that investors pay 50% xxx on dividends xxx 20% tax xx capital gains. If xxxxxx xxx priced xx xxxxx an xxx return after tax, what xxxxx A, xx and x xxxx xxxx for? Assume the xxxxxxxx dividend is x level xxxxxxxxxxx xxx xxx xxxxx xxxxxxxxxxxx xxxxxxxxxxxxx xxxxx your answers to x decimal places.)

xxxxxx P0

xxx 224.00

xxxxxxxx

C 140.00