The expected pretax return on three stocks is divided between dividends and capital gains in the following way:

Stock

Expected

Dividend

Expected

Capital Gain

A

$ 0

$10

B

5

5

C

10

0

a.

If each stock is priced at $175, what are the expected net returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21%,(the effective tax rate on dividends received by corporations is 6.3% and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains?(Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock

Pension

Investor

Corporation

Individual

A

%

%

%

B

%

%

%

C

%

%

%

b.

Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an 10% return after tax, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity.(Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock

P₀

A

$

B

C