Question
The HNH Corporation will pay a constant dividend of $2.50 pershare, peryear, in perpetuity. Assume all investors pay a 25% tax on dividends and that
The HNH Corporation will pay a constant dividend of $2.50 pershare, peryear, in perpetuity. Assume all investors pay a 25% tax on dividends and that there is no capital gains tax. The cost of capital for investing in HNH stock is 12%.
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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Real Estate Finance
Authors: John P. Wiedemer, Keith J. Baker
9th edition
324181426, 324181425, 978-0324181425
