Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Blue Sky Mining Corporation pays 28.8% corporate tax on its before-tax operating income of $2.55 million and a payout policy of 75.0%. The firm

image text in transcribed

The Blue Sky Mining Corporation pays 28.8% corporate tax on its before-tax operating income of $2.55 million and a payout policy of 75.0%. The firm has two choices: either (1) to payout immediately and investors can re-invest their dividends in a 6.0% one-year Midnight Oil Treasury Bond, or (2) to retain the money, re-invest it in a 6.5% one-year Midnight Oil Treasury Bond (the firm gets a better rate because it is bigger client), and payout the proceeds as dividends one year from now. An Australian imputation tax paying shareholder with a marginal tax rate of 15.5% holds 15.0% of Blue Sky Mining Corporation's common equity. For Q1-2: If Blue Sky Mining Corporation paid out a dividend immediately: Q1. What is the shareholder's after-tax dividend income now?\$ (Give answer to the nearest one dollar) Q2. If Blue Sky Mining Corporation paid out a dividend immediately, what is the shareholder's total after-tax dividend income one year from $ (Give answer to the nearest one dollar) For Q3-4: If Blue Sky Mining Corporation paid out a dividend one year from now: Q3. What is the total cash dividend received by the shareholder at that time? $ (Give answer to the nearest one dollar) Q4. What is the shareholder's total after-tax dividend income at that time? $ (Give answer to the nearest one dollar) For Q5: The choice between payout policies: Q5. Which pavout policy would the shareholder prefer if they chose rationally? Select the correct answer)

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

Finance And Financial Markets

Authors: Keith Pilbeam

3rd Edition

023023321X, 978-0230233218

More Books

Students also viewed these Finance questions

Question

f. Did they change their names? For what reasons?

Answered: 1 week ago