Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The JRN Corporation will pay a constant dividend of $3 per share, per year, in perpetuity. Assume that all investors pay a 20% tax on
The JRN Corporation will pay a constant dividend of $3 per share, per year, in perpetuity. Assume that all investors pay a 20% tax on dividends and that there is no capital gains tax. The cost of capital for investing in JRN stock is 12%.
a. What is the price of a share of JRN's stock? (Hint: Investors receive after-tax dividend in each year)
b. Assume that management makes a surprise announcement that JRN will no longer pay dividends but will use the cash to repurchase stock instead. What is the price of a share of JRN's stock now?
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