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Change to high-dividend-payout policy in world of taxes. Kevin currently owns 1,000 shares of Cylon, Inc. Cylon has a low-dividend-payout policy and this year will
Change to high-dividend-payout policy in world of taxes. Kevin currently owns 1,000 shares of Cylon, Inc. Cylon has a low-dividend-payout policy and this year will pay a $0.25 cash dividend on its shares, which are selling currently at $23.00. Kevin wants a high-dividend-payout policy of 5.5% of the stock price, or $1,265.00 after tax. Assume Kevin bought the stock at $16.00 per share and his tax rates are 25% on dividends and 15% on capital gains. If Kevin changes the dividend policy from a low-dividend-payout policy to a high-dividend-payout policy, how does his wealth change? What is Kevin's wealth in paper and cash under the current low-dividend-payout policy? (Round to the nearest dollar.)
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