Question
Octagon (OTC) is a leading heavy infrastructure firm, with 100 million shares outstanding trading at the NYSE. OTCs accountant, Boris Excelcius, introduced a new IRS
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Octagon (OTC) is a leading heavy infrastructure firm, with 100 million shares outstanding trading at the NYSE. OTCs accountant, Boris Excelcius, introduced a new IRS treatment for depreciation, allowing OTC to reduce depreciation payments by 50% to US$25 million a year. Assuming that OTCs corporate tax rate is t = 40%,
a. OTCs cash flows will increase by $10 million year
b. OTC will be able to increase dividend payments by 10 cents per share
c. OTC will be able to increase dividend payment by 2.5 cents per share
d. OTC will have to reduce dividend payments by 2.5 cents per share
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