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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The expected pretax return on three stocks in divided between dividends and capital gains in the following way: Stock A, Expected Dividend is $0, Expected Capital Gain is $20; Stock B, Expected Dividend is $10.00 and Expected Capital Gain is $10; Stock C Expected Dividend is $20 and Expected Capital Gain is 0. A. If each stock is priced at $100, what are the expected net returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35%, and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock A Pension_______%, Investor Corporation _____% Individual _________% Stock B Pension ______%, Investor Corporation _____%, Individual _________% Stock C Pension ______%, Investor Corporation _____%, Individual _________% B. Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an 10% return after tax, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your ansers to 2 decimal places.) Stock A $_________PO; Stock B $________PO; Stock C $________PO
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