Brew Inc. only pays dividends to its shareholders. The current share price is $100, the company has 10 million shares outstanding, $200 million in outstanding debt, and $150 million in excess cash. Assume that the company will use all of its excess cash to pay its shareholders a dividend. For simplicity, also assume that the ex-date is tomorrow and that the dividend will be paid on the ex-date. Assume that market are not perfect, and that the only market imperfection are taxes.

If the tax rate on dividends is 20% and the tax rate on capital gains is 30%, what will happen to the share price on the ex-date? Select the best one.

I. The share price will increase to $115. II. The share price will decline to $82.86. III. Nothing, the share price will remain at $100. IV. The share price will decline to $86.88. V. The share price will decline to $85.