Figure $1$: ESP and Dividends for Firm XYZ

Problem Solving $(30$ marks$)$:

Consider the following information about two firms, A and B :

The stock of firms A and $B$ are equally risky.

Dividends are taved at $40\%,$ capital gains at $20\%.$

Investors demand an expected after$-$tax rate of return of $10\%.$

Investors expect $A$ to be worth $$11250$ next year and $8$ to be worth $$102\mathrm{.}50.$ However, a $$10$ dividend is also widely forecasted for firm B so the total pre$-$tax profit is the same: $$112\mathrm{.}50.$

Show that lofie$-$lly firm $ must sell at a lower price today. Explain or comment on your solution as you proceed step$-$by$-$step. Finally, provide an intuitive conclusion, l$.$e$.,$ one that could be easily understood by a non$-$finance reader.