A firm earns a pretax profit of $40 per share. It pays a corporate tax of $14 per share (35% tax rate) in taxes. The firm pays the remaining amount in dividends to a shareholder in the 35% tax bracket. The company is correctly valued on the Stock exchange and operating under the classical taxation system

Multiple Choice

• This investor should not have a preference

• This investor should prefer dividends

• This investor should prefer capital gains

• This investor should prefer a share repurchase