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QUESTION 6 AAA Corp will pay a constant dividend of $2 per share, per year, in perpetuity. Assume all investors pay a 20% tax on
QUESTION 6 AAA Corp will pay a constant dividend of $2 per share, per year, in perpetuity. Assume all investors pay a 20% tax on dividends and that there is no capital gains tax. Suppose that other investments with equivalent risk to AAA stock offer an after-tax return of 12%. Which statements are correct? The price per share is $13.33 The price per share is $16.67 The price per share is $20.00 If management made a surprise announcement that AAA will no longer pay dividends but will use the cash to repurchase stock instead, the price of AAA stock would be $16.67 If management made a surprise announcement that AAA will no longer pay dividends but will use the cash to repurchase stock instead, the price of AAA stock would be $13.33 If management made a surprise announcement that AAA will no longer pay dividends but will use the cash to repurchase stock instead, the price of AAA stock would be $22.22 QUESTION 7
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