- - F stockholder base is composed of individuals. Annual Net Earnings equals $1 million (in...
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- - F stockholder base is composed of individuals. Annual Net Earnings equals $1 million (in perpetuity) for t = 1 to infinity. 100,000 stocks outstanding. Required Return on Equity after personal tax: 15%. Personal tax on capital gain is 20%, on dividends is 35%. Capital gains are taxed each year a) Assuming that F pays out 100% of net earnings in dividends every year for t = 1 to infinity, what is F's stock price at t = 0? b) Assume now that F will use net earnings to repurchase shares at t = 1 (and not pay any dividends at t = 1), and then revert to paying out 100% of net earnings as dividends for t = 2 to infinity. What is the value created at t = 0 for shareholders by this new payout policy? (Hint: as part of your solution, you will need to figure out how many shares are bought back at t = 1.) - - F stockholder base is composed of individuals. Annual Net Earnings equals $1 million (in perpetuity) for t = 1 to infinity. 100,000 stocks outstanding. Required Return on Equity after personal tax: 15%. Personal tax on capital gain is 20%, on dividends is 35%. Capital gains are taxed each year a) Assuming that F pays out 100% of net earnings in dividends every year for t = 1 to infinity, what is F's stock price at t = 0? b) Assume now that F will use net earnings to repurchase shares at t = 1 (and not pay any dividends at t = 1), and then revert to paying out 100% of net earnings as dividends for t = 2 to infinity. What is the value created at t = 0 for shareholders by this new payout policy? (Hint: as part of your solution, you will need to figure out how many shares are bought back at t = 1.) - - F stockholder base is composed of individuals. Annual Net Earnings equals $1 million (in perpetuity) for t = 1 to infinity. 100,000 stocks outstanding. Required Return on Equity after personal tax: 15%. Personal tax on capital gain is 20%, on dividends is 35%. Capital gains are taxed each year a) Assuming that F pays out 100% of net earnings in dividends every year for t = 1 to infinity, what is F's stock price at t = 0? b) Assume now that F will use net earnings to repurchase shares at t = 1 (and not pay any dividends at t = 1), and then revert to paying out 100% of net earnings as dividends for t = 2 to infinity. What is the value created at t = 0 for shareholders by this new payout policy? (Hint: as part of your solution, you will need to figure out how many shares are bought back at t = 1.) - - F stockholder base is composed of individuals. Annual Net Earnings equals $1 million (in perpetuity) for t = 1 to infinity. 100,000 stocks outstanding. Required Return on Equity after personal tax: 15%. Personal tax on capital gain is 20%, on dividends is 35%. Capital gains are taxed each year a) Assuming that F pays out 100% of net earnings in dividends every year for t = 1 to infinity, what is F's stock price at t = 0? b) Assume now that F will use net earnings to repurchase shares at t = 1 (and not pay any dividends at t = 1), and then revert to paying out 100% of net earnings as dividends for t = 2 to infinity. What is the value created at t = 0 for shareholders by this new payout policy? (Hint: as part of your solution, you will need to figure out how many shares are bought back at t = 1.)
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Part a Stock Price with 100 Dividend Payout Present Value of Dividends The stock is valued based on the present value of its future dividends Since th... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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