Hunter Industries has generated $1 million in excess of its investment needs. The firm can invest the
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Question:
Hunter Industries has generated $1 million in excess of its investment needs. The firm can invest the excess cash in Treasury bonds at 8 percent or distribute the cash to shareholders as a dividend. Assume that the corporate tax rate is 40 percent and that the firm is owned by three different kinds of taxpayers: The first type is tax-exempt, the second type has a 25 percent marginal tax rate, and the third type has a 40 percent marginal tax rate.
Describe the decision preferred by the three different investors, indicating the reasons for the decision and providing calculations to show your conclusions.
Related Book For
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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