You have become the new CEO of Y amp; Associates. The last CEO did some thinking on borrowing, but left you with no advice on dividend policy.

You have become the new CEO of Y & Associates. The last CEO did some thinking on borrowing, but left you with no advice on dividend policy. You want to know what happens to your stock price as a result of returning money to investors. You know the following:

i) You are planning to declare a dividend of $0.40, on which investors face a tax rate of 35%;

ii) Investors pay a capital gains tax of 35%, which can be deferred to future years;

iii) Investors have an opportunity cost of 8.5% in evaluating future cash flows.

(a) If the price of one share of Y&A (before the ex-dividend date) is $27, assuming the average investor defers taxes for 4

years, what will the price be right after the ex-dividend day?

(b) Assume now that the majority of your investors are corporations who face a capital gains tax of 35% and a 42.5%

ordinary tax on income (including dividends). Also assume now that, instead of being able to defer taxes, investors are

allowed to exempt 65% of the dividends they receive from taxes. If the shares are selling at $27 each, how much will the

stock price drop by by the end of the ex-dividend day?

(c) Explain intuitively why the price of the stock changes on the ex-dividend day.

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more