Harris Corporation has $243 million in cash and 147 million shares outstanding. Suppose the corporate tax rate

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Harris Corporation has $243 million in cash and 147 million shares outstanding. Suppose the corporate tax rate is 35% and investors pay no taxes on dividends, capital gains, or interest income. Investors had expected Harris to pay out the $243 million through a share repurchase. Suppose instead that Harris announces it will permanently retain the cash and use the interest on the cash to pay a regular dividend. If there are no other benefits of retaining the cash, how will Harris’ stock price change upon this announcement?

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Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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