10. The shares of Firm A and Firm B have identical risk. Both have an after-tax required...
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10. The shares of Firm A and Firm B have identical risk. Both have an after-tax required rate of return of 15 per cent. Firm A pays no dividend, while Firm B is a high dividend paying firm. The price of Firm A's share is expected to be 60 after one year and the price of Firm B 50 with 10 dividend per share. Assume that the income tax rate is 40 per cent and capital gain tax rate is 20 per cent. Determine the current prices of Firm A's and Firm B's shares.
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