Two corporations A and B have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $120 one year from now. Corporation B pays dividends and will have a price of $113 one year from now after paying the dividend. The corporations pay no taxes and investors pay no taxes on capital gains, but pay a 30% income on dividends. What is the value of the dividend that investors expect corporation B to pay one year from today? Please answer fast i give upvote
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Two corporations A and B have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $120 one year from now. Corporation B pays dividends and will have a price of $113 one year from now after paying the dividend. The corporations pay no taxes and investors pay no
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- KirkWood Corp.(KC) and Lenny Ltd.(LL) are in the same risk class. KC is expected to pay $2 per share dividend next year when the stock will sell for $30. LL has a no-dividend policy. Currently KC stock is selling for $40 per share. KC shareholders expect a $4 capital gain over the next year. Capital gains are taxed at 25%, and dividends are taxed at 30%. a.What is the current price of KC stock? b.If capital gains are also taxed at 28%, what is the share price of KC stock? c.Explain the result you found in part (b).The common stock and debt of Northern Sludge are valued at $56 million and $23 million, respectively. Investors currently require a 15% return on the common stock and an 7% return on the debt. If Northern Sludge Issues an additional $5 million of common stock and uses this money to retire debt, what is the new expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Expected stock return %Que Corporation pays a regular dividend of $1 per share. Typically, the stock price drops by $0.80 per share when the stock goes ex-dividend. Suppose the capital gains tax rate is 20%, but investors pay different tax rates on dividends. Absent transactions costs, what is the highest dividend tax rate of an investor who could gain from trading to capture the dividend?
- An investor has a 38 percent ordinary income tax rate and a 20 percent long-term capital gains tax rate. The investor holds stock in a firm that could pay its usual $1 per share dividend or reinvest the cash in the firm. The stock price is currently $30 per share. If the firm does not pay the dividend, the share price will rise. If it pays the dividend, the share price will stay the same. By how much must the share price rise if the dividend is not paid in order to make the investor indifferent between receiving the dividend or not? a. $1.00 b. $0.59 c. $0.78 d. $0.97 e. $0.50(b) ABC plc and DEF plc have exactly the same risk, and both have a current stock price of £150. ABC plc pays no dividend and will have a price of £200 one year from now. DEF plc pays dividends and will have a price of £180 one year from now, after paying the dividend. The companies pay no taxes. Investors pay no taxes on capital gains but pay a 20% income tax on dividends. What is the value of the dividend that investors expect DEF plc to pay one year from today? Show your working, and state your reasoning.The common stock and debt of Northern Sludge are valued at $66 million and $34 million, respectively. Investors currently require a return of 15.6% on the common stock and 8.1% on the debt. If Northern Sludge issues an additional $17 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes (do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places).
- Assume we are in a Modigliani-Miller (no tax) world. Exeter Corporation has $20 million in excess cash and has no debt. The firm expects to generate additional cash flow of $48 million per year in perpetuity. It has 10 million shares outstanding. Exeter Corporation decides to use the $20 million excess cash to repurchase shares in the stock market. After the share repurchase Exeter plans to distribute all of its annual cash flow as dividends every year. Exeter Corporation’s cost of capital is 12%. ( a) What would be the stock price reaction after the announcement of the plan? (b) Calculate the share price after the announcement. (c) How many shares can Exeter Corporation buy with its excess cash? (d) Show that the share price after the share repurchase transaction is identical to post-announcement price.The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 4 percent. Suppose the capital gains tax rate is zero, whereas the dividend tax rate is 30 percent. Gecko has an expected earnings growth rate of 16 percent annually and its stock price is expected to grow at this same rate. The aftertax expected returns on the two stocks are equal (because they are in the same risk class). What is the pretax required return on Gordon's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Pretax return %Assume we are in a Modigliani-Miller (no tax) world. Exeter Corporation has $20 million in excess cash and has no debt. The firm expects to generate additional cash flow of $48 million per year in perpetuity. It has 10 million shares outstanding. Exeter Corporation decides to use the $20 million excess cash to repurchase shares in the stock market. After the share repurchase Exeter plans to distribute all of its annual cash flow as dividends every year. Exeter Corporation’s cost of capital is 12%. Q: What would be the stock price reaction after the announcement of the plan?
- Hawar International is a shipping firm with a current share price of $4.94 and 9.8 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $8.7 million and repurchasing shares, that Hawar pays a corporate tax rate of 25%, and that shareholders expect the change in debt to be permanent. a. If the only imperfection is corporate taxes, what will be the share price after this announcement? b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt? a. If the only imperfection is corporate taxes, what will be the share price after this announcement? The share price after this announcement will be $ per share. (Round to the nearest cent.) b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this…Company Z has a total value of $ 500,000. On its balance sheet, it has a debt of $ 150,000 paid at 3%. The shareholders ask for a dividend of 10% a year. Company Z is yearly audited and pays all its due taxes. What is the capital structure for Z? What would be the risk profile of Z? How can capital structure influence the risk profile of Z?Hawar International is a shipping firm with a current share price of $4.50 and 10 million shares outstanding. Suppose Hawar announces plans to lower its corporate taxes by borrowing $10 million and repurchasing shares. a. With perfect capital markets, what will the share price be after this announcement? b. Suppose that Hawar pays a corporate tax rate of 40%, and that shareholders expect the change in debt to be permanent. If the only imperfection is corporate taxes, what will the share price be after this announcement? c. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.55 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt? Question content area bottom Part 1 a. With perfect capital markets, what will the share price be after this announcement? With perfect capital markets, the share price will be $enter your response here per share