Question: Payall Inc., Payless Inc., and Paynone Inc. have identical operations. They follow a large, medium, and zero (no dividend) payout policy respectively. The expected share

Payall Inc., Payless Inc., and Paynone Inc. have identical operations. They follow a large, medium, and zero (no dividend) payout policy respectively. The expected share prices at dates 0 and 1 for Paynone Inc. are $100 and $125, and the expected dividends per share (at date 1) for Payall and Payless are $25 and $12.50 respectively. The market prices are set so that their after-tax expected returns are equal. What should the current share prices of Payless Inc. and Payall Inc. be? Assume that the marginal personal tax rate on dividends is 25%, and the effective tax rate on capital gains is zero.

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ANSWER Paynone payless Payall Next years stock price 125 1125 100 Dividend 0 125 25 total pretax pay... View full answer

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