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. You have compiled a table with the current tax

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

You are a consultant that has been hired to recommend a payout policy for UBT Corp. You have compiled a table with the current tax rates that different types of investors in the stock market face (see table below). Assume that all of UBT's shareholders are investors of Type 2. Given this information, how should UBT structure its payout policy? Select the best one. I. The company should only repurchase shares, because the tax rate on dividends is higher than the tax rate on capital gains for this investor type. II. This investor group will be indifferent between the company paying dividends or repurchasing shares. III. The company should only repurchase shares, because the tax rate on capital gains is higher than the tax rate on dividends for this investor type. IV. The company should only pay dividends, because the tax rate on dividends is lower than the tax rate on capital gains for this investor type. V. The company should only pay dividends, because the tax rate on dividends is higher than the tax rate on capital gains for this investor type. You are a consultant that has been hired to recommend a payout policy for UBT Corp. You have compiled a table with the current tax rates that different types of investors in the stock market face (see table below). Assume that all of UBT's shareholders are investors of Type 1 and Type 2. Given this information, how should UBT structure its payout policy? Select the best one. I. The company should only repurchase shares, because Type 1 investors will prefer repurchases and Type 2 investors will be indifferent between dividends and repurchases. II. The company should only repurchase shares, because Type 2 investors will prefer repurchases and Type 1 investors will be indifferent between dividends and repurchases. III. Both investor groups will be indifferent between the company paying dividends or repurchasing shares. IV. The company should only pay dividends, because Type 1 investors will prefer dividends and Type 2 investors will be indifferent between dividends and repurchases. V. The company should only pay dividends, because Type 2 investors will prefer dividends and Type 1 investors will also pefer dividends You are trying to estimate the share price for DownStream Inc. You have forecasted the following information about earnings and payouts to shareholders for the next five years (see table below). In addition, you know that after year 5 the company will maintain a constant payout rate of 70% in perpetuity. The company's equity cost of capital (rE) is 12%, its return on new investment is 13%, and it currently has 200 million shares outstanding. Based on the information provided, what is a good estimate for the firm's share price? Select the best one. I. $51.16 II. $115.85 III. $63.56 IV. $99.85 V. $12,712 You are trying to estimate the share price for SolarStream Inc. You have forecasted the following information about earnings per share and dividends per share for the next five years (see table below). In addition, you know that after year 5 the company will maintain a constant payout rate of 60% in perpetuity. The company's equity cost of capital (rE) is 12%, its return on new investment is 13%, and it currently has 100 million shares outstanding. Assume the company only pays dividends and does not repurchase any shares. Based on the information provided, what is a good estimate for the firm's share price? Select the best one. I. $34.59 II. $110.85 III. $67.53 IV. $0.35 V. $14.20

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

Entrepreneurial Finance

Authors: Gary E. Gibbons, Robert D. Hisrich, Carlos Marques DaSilva

1st Edition

1452274177, 978-1452274171

More Books

Students also viewed these Finance questions

Question

Explain at least three forms of computer fraud.

Answered: 1 week ago