Question

17-3)
The expected pretax return on three stocks is divided between dividends and capital gains

in the following way:

StockExpected DividendExpected Capital GainA$ 0              $ 2              B  12                   12              C 28                  0              

a.If each stock is priced at $100, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35% (The effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Stock  Pension  Investor Corporation  IndividualA %   %   %  B %   %   %  C %   %   %   

b.Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an after-tax return of 8%, 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    PriceA$   B$   C$  

Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"