Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

National Business Machine Co. (NEM) has $4.8 million of extra cash asortaxes have been paid. NBM has two choices to make use of this cash.

image text in transcribed
National Business Machine Co. (NEM) has $4.8 million of extra cash asortaxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cesh in financial assets. The resulting investment income will be paid out es especial dividend at the end of three years. In this case, the firm can invest in Tressury bila yielding 26 percent or a 5 percent preferred stock. IRS regulations allow the company to exclude from taxable income 50 percent of the dividends received from investing in another company's stock Another alternative is to pay out the cash now es dividends This would allow the shareholders to invest on their own in Treasury bills with the same yield. or in preferred stock. The corporate sex rate is 23 percent Assume the investor has a 38 percent personal income tax rate, which is applied to interest income and preferred stock dividends. The personal dividend 15% rate is 15 percent on common stock dividends Suppose the company reinvests the 54.8 million and pays dividend in three years. What is the total eftertex cash flow to shareholders the company invests in Tbils? Do not found Intermediate calculations and enter you answer in dollars, not millons, rounded to 2 decimal places, e.g. 1234.567.89.) Value in three years What is the total ofertex cash flow to shareholders if the company invests in preferred stock? (Do not found intermediate calculations and enter you answer in dollars, not millions rounded to 2 decimal places.e.g. 1.234.567.89.) Value in three years Suppose instesd that she company pays $4.8 million dividend now and the shareholder reinvests the dividend for three years. What is the total aftertax cash flow to shareholders if the shareholder invests in Tbile? (Do not round Intermediate calculations and enter you answer in dollars, not milions, rounded to 2 decimal places. e.g. 1.234.567.89.) Value in the years What is the total aftertax cash flow to shareholders if the shareholder invests in preferred stock? (Do not round Intermediate calculations and enter you answer in dollars, not milions, rounded to 2 decimal places, e... 1.234.567.89.) Value in three years

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_2

Step: 3

blur-text-image_3

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

Financial Institutions Management

Authors: Anthony Saunders

3rd Edition

007303259X, 978-0073032597

More Books

Students also viewed these Finance questions

Question

What is the blend of different types od patients seen?

Answered: 1 week ago

Question

Detailed note on the contributions of F.W.Taylor

Answered: 1 week ago