Suppose that all capital gains are taxed at a 20% rate, and that the dividend tax rate is 40%. ABC Corpis currently trading for $25,
Suppose that all capital gains are taxed at a 20% rate, and that the dividend tax rate is 40%. ABC Corpis currently trading for $25, and is about to pay a $3 special dividend.
a.What is ABC Corps share price just after the dividend is paid?
b.Suppose ABC Corp announces that it would do a share repurchase instead of the special dividend. What net tax savings per share would result from this decision for an investor?
c.What would happen to ABC Corp's share price upon the announcement of this decision?
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Authors: Jim DeMello
3rd edition
1259330476, 1259330478, 9781259352652 , 978-1259330476
