Assume capital markets are perfect. Kay Industries currently has $100 million invested in short-term Treasury securities paying 7%, and it pays out the interest payments on these securities each year as a dividend. The board is considering selling the Treasury securities and paying out the proceeds as a one-time dividend payment.

e. Assume now that Kay must pay a corporate tax rate of 35%, and investors pay no taxes. What would happen to the value of Kay stock on the ex-dividend date of the one-time dividend?

Question 9 options:

	The value of Kay will rise by $35 million.
	The value of Kay will fall by $100 million.
	The value of Kay will remain the same.