Question
18. A firm plans to pay dividends of $12.50 at time 0 and $14 at time 1. Ignoring transaction costs and assuming that the investor
18. A firm plans to pay dividends of $12.50 at time 0 and $14 at time 1. Ignoring transaction costs and assuming that the investor can earn 8% on investments, which statement is true?
A. An investor can spend up to $25.46 from dividends at time 0, and without decreasing the present value of all dividends received. B. An investor can spend up to $27.50 from dividends at time 0, and without decreasing the present value of all dividends received. C. An investor can spend up to $25.46 from dividends at time 0, but will decrease the present value of all dividends received. D. An investor can spend up to $27.50 from dividends at time 0, but will decrease the present value of all dividends received.
Why A is true?
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