Suppose that all capital gains are taxed at a 26% rate, and that the dividend tax rate

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Suppose that all capital gains are taxed at a 26% rate, and that the dividend tax rate is 34%.

Arbuckle Corp. is currently trading for $$37$ and is about to pay a $$5$ special dividend.

a. Absent any other trading frictions or news, what will its share price be just after the dividend is paid?

Suppose Arbuckle made a surprise announcement that it would do a share repurchase rather than pay a special dividend.

b. What net tax savings per share for an investor would result from this decision?

c. What would happen to Arbuckle’s stock price upon the announcement of this change?

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Corporate Finance

ISBN: 9781292446318

6th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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Question Posted: Apr 04, 2024 04:00 AM

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Suppose that all capital gains are taxed at a 26% rate, and that the dividend tax rate

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Corporate Finance

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