Sarah just bought 100 shares of Hewlett Packard for $20 per share. Soon after, HP announced...

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Sarah just bought 100 shares of Hewlett Packard for $20 per share. Soon after, HP announced a tender offer to acquire 10% of shares outstanding at a price of $20 per share. Assume that Sarah sells 10% of her shares to the company through the tender offer and then sells the remainder on the market at $20. What is her after-tax change in wealth? Assume that nothing else happens to change the stock price (other than the repurchase), that her tax rate on capital gains is 15%, and her tax rate on dividends is also 15%. Assume that she has other capital gains against which she can use a capital loss. Sarah just bought 100 shares of Hewlett Packard for $20 per share. Soon after, HP announced a tender offer to acquire 10% of shares outstanding at a price of $20 per share. Assume that Sarah sells 10% of her shares to the company through the tender offer and then sells the remainder on the market at $20. What is her after-tax change in wealth? Assume that nothing else happens to change the stock price (other than the repurchase), that her tax rate on capital gains is 15%, and her tax rate on dividends is also 15%. Assume that she has other capital gains against which she can use a capital loss.

Answer rating: 100% (QA)

Since Sarah is selling 10 of her shares back to HP she sells 10 shares back to the company at 20 per ... View the full answer