Question
You manage a? (tax-free) pension fund that is invested in KOA Corporation.? KOA's managers have just announced that they unexpectedly generated an extra ?$50 million
You manage a? (tax-free) pension fund that is invested in KOA Corporation.? KOA's managers have just announced that they unexpectedly generated an extra ?$50 million in cash flow this year. They are considering paying it out now as a special dividend or investing it in? one-year Treasury securities that will earn 1.0?% interest over the next year. They would then distribute the $50 million plus interest earned as a special dividend. If KOA pays a 35% corporate tax? rate, would you prefer they pay the $50 million as a special dividend now or wait a? year?
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