Question
Show the steps to the Solution Assume that capital markets are perfect, except that corporations pay taxes. The corporate tax rate is 39.8%. Investors do
Show the steps to the Solution
Assume that capital markets are perfect, except that corporations pay taxes. The corporate tax rate is 39.8%. Investors do not pay taxes. The company has invested $234,000,000 in t-bills. The t-bills earn 5.4% compounded annually. The company pays out the t-bill interest payments as a dividend. The company is thinking about selling the t-bills and paying out the proceeds from the sale as a one-time dividend payment.
If the company goes ahead with its plan what would be the change in the value of the company's stock?
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