Question
Barleck Corp. has $285 million in cash and 140 million shares outstanding. Suppose the corporate tax rate is 35% and investors pay no taxes on
Barleck Corp. has $285 million in cash and 140 million shares outstanding. Suppose the corporate tax rate is 35% and investors pay no taxes on dividends, capital gains, or interest income. Investors had expected Barleck Corp. to pay out the $285 million through a share repurchase. Suppose instead that Barleck Corp. announces it will permanently retain the cash and the cash will generate interest incomes.
Assume tax is the only market imperfection. If there are no other benefits of retaining the cash, how will Barleck Corp's stock price change upon this announcement?
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