Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are a consultant that has been hired to recommend a payout policy for UBT Corp. UBT's shareholders are almost all buy and hold individual

You are a consultant that has been hired to recommend a payout policy for UBT Corp. UBT's shareholders are almost all buy and hold individual investors as well as one-year individual investors. No shareholder of UBT owns more than 20% of all outstanding shares. You have compiled a table with the current tax rates that different types of investors might face (see below). With the information provided, how would you recommend that UBT structure its payout policy? Assume that taxes are the only market imperfection.Select the best answer.

image text in transcribed
Qustion 1 5 points Save Answer You are a consultant that has been hired to recommend a payout policyfor UBT Corp. UBT's shareholders are almost all buy and hold individual investors as well as oneyear individual investors. No shareholder of UBT owns more than 20% of all outstanding shares. You have compiled a table with the current tax rates that different types of investors might face (see below). With the information provided, how would you recommend that UBT structure its payout policy? Assume that taxes are the only market imperfection. Select the best answer. Tax Rates for Different Investor Types Investor Type Tax Rate on Dividends Tax Rate on Capital Gains Buy and hold individual investor 20% 0% One-year individual investor 20% 20% Pension fund 0% 0% Corporation with less than 20% ownership 10.5% 21% O I. The rm should only use dividends. 0 II. The rm should only repurchase shares. 0 III. The rm should pay dividends and repurchase shares in equal amounts. 0 IV. How the firm structures its payout policy is irrelevant because investors are indifferent between dividends and repurchases

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

Survey Of Economics, Principles, Applications, And Tools

Authors: Arthur O'Sullivan, Steven M. Sheffrin, Stephen J. Perez

5th Edition

0132556073, 978-0132556071

More Books

Students also viewed these Finance questions