22. Assume capital markets are perfect. Kay Industries currently has $100 million invested in short- term...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
22. Assume capital markets are perfect. Kay Industries currently has $100 million invested in short- term Treasury securities paying 7%, and it pavs out the interest payments on these securities cach year as a dividend. The board is considering selling the Treasury securities and paying out the procceds as a one-time dividend a. If the board went ahead with this plan, what would happen to the value of Kay stock upon the announcement of a change in policy? b. What would happen to the value of Kay stock on the ex-dividend date of the one-time dividend? payment. C. Given these price reactions, will this decision benefit investors? 23. Redo Problem 22, but assume that Kay must pay a corporate tax rate of 35%, and investors pay no taxes. 24. Harris Corporation has $250 million in cash, and 100 million shares outstanding. Suppose the corporate tax rate is 35%, and investors pay no taxes on dividends, capital gains, or interest income. Investors had expected Harris to pay out the $250 million through a share repurchase. Suppose instead that Harris announces it will permanently retain the cash, and use the interest on the cash to pay a regular dividend. If there are no other benefits of retaining the cash, how will Harris's stock price change upon this announcement? 25. Redo Problem 22, but assume the following: a. Investors pay a 15% tax on dividends but no capital gains taxes or taxes on interest income, and Kay does not pay corporate taxes. b. Investors pay a 15% tax on dividends and capital gains, and a 35% tax on interest income, while Kay pays a 35% corporate tax rate. 22. Assume capital markets are perfect. Kay Industries currently has $100 million invested in short- term Treasury securities paying 7%, and it pavs out the interest payments on these securities cach year as a dividend. The board is considering selling the Treasury securities and paying out the procceds as a one-time dividend a. If the board went ahead with this plan, what would happen to the value of Kay stock upon the announcement of a change in policy? b. What would happen to the value of Kay stock on the ex-dividend date of the one-time dividend? payment. C. Given these price reactions, will this decision benefit investors? 23. Redo Problem 22, but assume that Kay must pay a corporate tax rate of 35%, and investors pay no taxes. 24. Harris Corporation has $250 million in cash, and 100 million shares outstanding. Suppose the corporate tax rate is 35%, and investors pay no taxes on dividends, capital gains, or interest income. Investors had expected Harris to pay out the $250 million through a share repurchase. Suppose instead that Harris announces it will permanently retain the cash, and use the interest on the cash to pay a regular dividend. If there are no other benefits of retaining the cash, how will Harris's stock price change upon this announcement? 25. Redo Problem 22, but assume the following: a. Investors pay a 15% tax on dividends but no capital gains taxes or taxes on interest income, and Kay does not pay corporate taxes. b. Investors pay a 15% tax on dividends and capital gains, and a 35% tax on interest income, while Kay pays a 35% corporate tax rate.
Expert Answer:
Answer rating: 100% (QA)
ANSWER 1 The correct account the questions are given below a the right answer is C the worth of Kay would remain an equivalent this is often due to th... View the full answer
Related Book For
Posted Date:
Students also viewed these corporate finance questions
-
Redo Problem 11, but assume that Kay must pay a corporate tax rate of 35%, and that investors pay no taxes.
-
Assume perfect capital markets. Kay Industries currently has $100 million invested in short-term Treasury securities paying 7%, and it pays out the interest payments on these securities as a...
-
What would happen to the value of the 10-year bond over time if the required rate of return remained at 13 percent, or if it remained at 7 percent?
-
Identify in which ledger (general or subsidiary) each of the following accounts is shown: 1. Rent Expense 2. Accounts Receivable-Chen 3. Bank Loan Payable 4. Service Revenue 5. Salaries Payable 6....
-
A source of UV light has a wavelength of 150 nm. How much energy does one of its photons have expressed in (a) Joules and (b) Electron-volts?
-
A 30.0-m steel wire and a 20.0-m copper wire both with 1.00-mm diameters, are connected end to end and stretched to a tension of 150 N. How long does it take a transverse wave to travel the entire...
-
At December 31,2010, Inland Equipment understated ending inventory by $2,800. How does this error affect cost of goods sold and net income for 2010? a. Overstates cost of goods sold and understates...
-
Joan Ziemba owns a small variety store. The following transactions took place during March of the current year. Journalize the transactions in a general journal using the perpetual inventory method....
-
Why is the fixed costs different that the total operating expenses?
-
Given the data in the file Stock Beta.xlsx, estimate the beta (and alpha) for Microsoft (MSFT). Do this for each criterion and each period of time to obtain a table analogous to that in the top right...
-
A chef in a restaurant wants to design two types of salads. salad 1 and salad 2. There are 5 ingredients that could be included in any of them. lettuce, cucumbers. ham, nuts and goat cheese. each...
-
Managers in a workplace typically have 4 main functions: planning, organizing, leading, and controlling., you will explore the importance and impact of these functions to better understand and value...
-
Lux watches are a premium timepiece made of superior Swiss technology. The current product manager wants to use a generic brown box to house the product in order to save money. How might this affect...
-
Respond to Following The global implications for our products are characterized by the various changes that support the sustainability since our market promotes healthy and organic foods. The global...
-
ABC Paints sells paints and chemical products. They are leading brand in this category. In 2019, they achieved a revenue of INR 250 Crores. They operate only in India which is a big market estimated...
-
Jules Austin wants to hire new customer service representatives. She is considering using a measure of Emotional Intelligence(El) to help select her new employees. Explain what El is and how it could...
-
Prasad recently joined SupportKids, taking on the role of the team leader. Prasad has recently moved to Australia from India. He was very pleased that his experience with children in need in India...
-
In Exercises 1558, find each product. (9 - 5x) 2
-
Gillette Corporation will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off...
-
Aberdeen Outboard Motors is contemplating building a new plant. The company anticipates that the plant will require an initial investment of $2 million in net working capital today. The plant will...
-
Sora Industries has 60 million outstanding shares, $120 million in debt, $40 million in cash, and the following projected free cash flow for the next four years (see MyFinanceLab for the data in...
-
Four employees in an office have annual salaries of $30,000, $35,000, $45,000, and $70,000. a. Compute the mean salary. b. Compute the median salary. c. Each employee gets a $1000 raise. Compute the...
-
Consider the following data set: a. Show that the mean and median are both equal to 5. b. Suppose that a value of 26 is added to this data set. Which is affected more, the mean or the median? c....
-
Consider the following data set: a. Compute the mean and median. b. Based on the mean and median, would you expect the data set to be skewed to the left, skewed to the right, or approximately...
Study smarter with the SolutionInn App