# 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

Answer rating (rated one time)

## For Vivia Only

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The xxxxxxxx pretax xxxxxx on xxxxx xxxxxx is xxxxxxx xxxxxxx xxxxxxxxx and xxxxxxx xxxxx xx xxx xxxxxxxxx way:

Stock Expected

xxxxxxxxxxxxxxxxx

xxxxxxx xxxx

A xx $28

B 14 x xx

xx xx x

xx

xx each stock xx xxxxxx xx xxxxx what xxx the xxxxxxxx net returns on xxxx xxxxx xx xxx a xxxxxxx xxxx that xxxx not pay taxes, xxxx x xxxxxxxxxxx paying xxx at xxxx xxx (iii) xx xxxxxxxxxx xxxx xx effective tax rate of 15% xx dividends and 10% xx capital gains? xxx xxx xxxxx xxxxxxxxxxxx xxxxxxxxxxxxx Round xxxx xxxxxxx xx 2 decimal places.)

Stock Pension Investor

Corporation xxxxxxxxxx

xxxxxxx x xxxxxx % 25.20 %

xxxxxxx % xxxxxx x 24.50 %

C 28.00 x 25.06 % 23.80 x

b.

xxxxxxx that xxxxxxxxx xxx xxx tax on xxxxxxxxx and 20% xxx on capital xxxxxx xx stocks are xxxxxx xx yield xx xxx return xxxxx tax, xxxx xxxxx A, B, xxx C each xxxx for? xxxxxx xxx expected xxxxxxxx is a xxxxx perpetuity. xxx not round intermediate xxxxxxxxxxxxx Round your answers xx x decimal places.)

Stock P0

A $ 224.00

B 182.00

C 140.00

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