Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Harris Corp. has $250 million in cash and 100 million shares outstanding. Suppose the firms corporate tax rate is 24% and investors pay a 20%

Harris Corp. has $250 million in cash and 100 million shares outstanding. Suppose the firms corporate tax rate is 24% and investors pay a 20% tax on dividends and capital gains and a 35% tax on interest income. Investors had expected Harris to pay out the $250 million through a share repurchase, but Harris instead announces that it will permanently retain the cash and use the interest earned on the cash to pay a regular dividend. If there are no other benefits of retaining the cash, how will Harris stock price change upon this announcement?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Value Investing

Authors: Mike Hartley

1st Edition

979-8864443309

More Books

Students also viewed these Finance questions

Question

What is the combined tax rate for Alabama (AL)?

Answered: 1 week ago