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Investors require an after-tax rate of return of 10% on their stock Investments. Assume that the tax rate on dividends is 30% while capital gains
Investors require an after-tax rate of return of 10% on their stock Investments. Assume that the tax rate on dividends is 30% while capital gains escape taxation. A firm will pay a $2 per share dividend 1 year from now, after which the firm's stock is expected to sell at a price of $35. a. Find the current price of the stock. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Current price b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Before-tax rate of return c. Now suppose that the dividend will be $6 per share. If the expected after-tax rate of return is still 10% and Investors still expect the stock to sell at $35 In 1 year, at what price must the stock now sell? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Price d. What is the before-tax rate of return? (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Before-tax rate of return 9%
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