Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 08 Jul 2017 My Price 11.00

expected pretax return

The expected pretax return on three stocks is divided between dividends and capital gains in the following way:

 

Stock Expected Dividend Expected Capital Gain
A $ 0 $ 17
B 12 12
C 17 0

 

a.

If each stock is priced at $100, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 45% (The effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Stock Pension Investor Corporation Individual
A % % %
B % % %
C % % %

 

b.

Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Stock Price
A $
B $
C $
s

Answers

Maurice Tutor
(5)
Status NEW Posted 08 Jul 2017 11:07 AM My Price 11.00

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