Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

PowerPoints Inc. only pays dividends to its shareholders. The current share price is $85, the company has 200 million shares outstanding, $6,000 million in outstanding

PowerPoints Inc. only pays dividends to its shareholders. The current share price is $85, the company has 200 million shares outstanding, $6,000 million in outstanding debt, and $600 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 markets 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 20%, what will happen to the share price on the ex-date

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

Cases In Healthcare Finance

Authors: Louis C. Gapenski

2nd Edition

1567932002, 978-1567932003

More Books

Students also viewed these Finance questions