Kaldis Inc. only pays dividends to its shareholders. The current share price is $85, the company has 20 million shares outstanding, $400 million in outstanding debt, and $200 million in excess cash. Assume that the company will use all of its excess cash to pay its shareholders a dividend. For simplicity, also assume that the ex-date is tomorrow and that the dividend will be paid on the ex-date. Assume that market are NOT perfect, and that the only market imperfection are taxes. If the tax rate on dividends is 20% and the tax rate on capital gains is 10%, what will happen to the share price on the ex-date?

Select the best one.

I. The share price will decline to $75.

II. The share price will decline to $73.75.

III. The share price will remain at $85.

IV. The share price will increase to $95.

V. The share price will decline to $76.11.