If Consolidated Power is priced at $50.00 with dividend, and its price falls to $46.50 when a dividend of $5.00 is paid, what is the implied marginal rate of personal taxes for its stockholders? Assume that the tax on capital gains is 40% of the personal income tax.
Answer to relevant QuestionsRJR Nabisco, in response to stockholder pressure in 1996, announced a significant increase in dividends paid to stockholders financed by the sale of some of its assets. What would you expect the stock price to do? Why? Geotech Inc., which has had a history of high growth and pays no dividends, announces that it will start paying dividends next quarter. How would you expect its stock price to react to the announcement? Why? GL Corporation, a retail firm, is making a decision on how much it should pay out to its stockholders. It has $100 million in investible funds. The following information is provided about the firm: • It has 100 million ...Between 1988 and 2013, we saw an increase in the percentage of cash returned to stockholders in the form of dividends. Why? Now assume that Lube Oil has a return on equity of 5% and a cost of equity of 10%. As a stockholder in Lube Oil, would you want the firm to change its dividend policy? Why or why not?
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