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.

Answer rating: 100% (QA)

Since ABC and DEF have the same risk their expected rates of return should also be the same Theref... View the full answer