The HNH Corporation will pay a constant dividend of $4 per share, per year, in perpetuity. Assume
Question:
The HNH Corporation will pay a constant dividend of $4 per share, per year, in perpetuity.
Assume all investors pay a 25% tax on dividends and that there is no capital gains tax. The cost of capital for investing in HNH stock is 11%.
a. What is the price of a share of HNH stock?
b. Assume that management makes a surprise announcement that HNH will no longer pay dividends but will use the cash to repurchase stock instead. What is the price of a share of HNH stock now?
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Step by Step Answer:
a The price of a share of HNH stock can be calculated using the dividend discount model which takes ...View the full answer
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Related Book For 
Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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