Question
The HNH Corporation will pay a constant dividend of $2.00 pershare, peryear, in perpetuity. Assume all investors pay a 20% tax on dividends and that
The HNH Corporation will pay a constant dividend of $2.00 pershare, peryear, in perpetuity. Assume all investors pay a 20% tax on dividends and that there is no capital gains tax. Suppose the other investments with equivalent risk to HNH stock offer anafter-tax return of 14%.
a. What is the price of a share of HNHstock?
b. Assume that management makes a surprise announcement that HNH will no longer pay dividends but will use the cash to repurchase stock instead. What is the price of a share of HNH stocknow?
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Personal Finance
Authors: Jeff Madura
7th Edition
0134989961, 978-0134989969
