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Consider a firm will pay a dividend of $2 per share forever (0% dividend growth). Investors pay a 20% tax on dividends but no capital
Consider a firm will pay a dividend of $2 per share forever (0% dividend growth). Investors pay a 20% tax on dividends but no capital gains tax. The firms return of equity is 12%.
- (a) What is the price of the firms stock?
- (b) If the firm switches from paying dividends to using the same amount of cash to repurchase shares, what is the price of the firms stock immediately after this announcement?
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A First Course in Quantitative Finance
Authors: Thomas Mazzoni
1st edition
9781108411431, 978-1108419574
