[Q: 17-5702877] Cash Hoarding. A firm has $4.2 million of extra cash and has two choices...

 

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[Q: 17-5702877] Cash Hoarding. A firm has $4.2 million of extra cash and has two choices to make use of this cash. Option A is to invest the cash into a treasury bills yielding 2.6% per year and then paying out the resulting investment income as a special dividend at the end of 6 years. Option B is to pay out the cash now as a special dividend. This will allow the shareholders to invest the cash into the same treasury bills. The corporate tax rate is 21%. Shareholders face a 28% personal income tax rate, which is applied to interest income, and face a 15% personal dividend tax rate. Firm Invests Part A: Suppose the firm pursues Option A. What investment income will the firm have at the end of 6 years? Investment income: $ 4744926.39. (Round your answer to two decimal places and use the rounded value in Part B.) Part B: What is the total aftertax cash flow to shareholders resulting from the firm issuing the investment income as a special dividend? The total aftertax cash flow is $4033187.43. (Round your answer to two decimal places.) Shareholders Invest Part C: Suppose the firm pursues Option B. What is the aftertax dividend that the shareholders will receive now? The total aftertax dividend payment is $ 3570000. (Round your answer to two decimal places and use the rounded value in Part D.) Part D: What investment income will the shareholders have at the end of 6 years if they invest in treasury bills? Investment income: $ 3990223.40. (Round your answer to two decimal places.) [Q: 17-5702877] Cash Hoarding. A firm has $4.2 million of extra cash and has two choices to make use of this cash. Option A is to invest the cash into a treasury bills yielding 2.6% per year and then paying out the resulting investment income as a special dividend at the end of 6 years. Option B is to pay out the cash now as a special dividend. This will allow the shareholders to invest the cash into the same treasury bills. The corporate tax rate is 21%. Shareholders face a 28% personal income tax rate, which is applied to interest income, and face a 15% personal dividend tax rate. Firm Invests Part A: Suppose the firm pursues Option A. What investment income will the firm have at the end of 6 years? Investment income: $ 4744926.39. (Round your answer to two decimal places and use the rounded value in Part B.) Part B: What is the total aftertax cash flow to shareholders resulting from the firm issuing the investment income as a special dividend? The total aftertax cash flow is $4033187.43. (Round your answer to two decimal places.) Shareholders Invest Part C: Suppose the firm pursues Option B. What is the aftertax dividend that the shareholders will receive now? The total aftertax dividend payment is $ 3570000. (Round your answer to two decimal places and use the rounded value in Part D.) Part D: What investment income will the shareholders have at the end of 6 years if they invest in treasury bills? Investment income: $ 3990223.40. (Round your answer to two decimal places.)

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Given facts Extra cash 42M Treasury bill annual yield 26 Corporate tax rate 21 ... View the full answer