Assume capital markets are perfect. Kabo Industries currently has $12 million invested in short term Treasury securities paying 8%, and it pays out the interest payments on these securities each year as a dividend. The board is considering selling the Treasury securities and paying out the proceeds as a one-time dividend payment. i. If the board went ahead with this plan, what would happen to the value of Kabo stock upon the announcement of a change in policy? ii. What would happen to the value of Kabo stock on the ex-dividend date of the one-time dividend? iii. Given these price reactions, will this decision benefit investors?

Assume capital markets are perfect. Kabo Industries currently has $12 million invested in short term Treasury securities paying 8%, and it pays out the interest payments on these securities each year as a dividend. The board is considering selling the Treasury securities and paying out the proceeds as a one-time dividend payment. i. If the board went ahead with this plan, what would happen to the value of Kabo stock upon the announcement of a change in policy? ii. What would happen to the value of Kabo stock on the ex-dividend date of the one-time dividend? iii. Given these price reactions, will this decision benefit investors?

Name: Assume capital markets are perfect. Kabo Industries currently has $12
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Description: Assume capital markets are perfect. Kabo Industries currently has $12 million invested in shortterm Treasury securities paying 8%, and it pays out the interest payments on these securitieseach year as a dividend. The board is considering selling the

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 10QTD

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