Chapter17_xlsSol

Chapter17_xlsSol - Problems Problem 17-12 Problem 17-13...

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Problems Problem 17-12 Problem 17-13 Problem 17-14 Problem 17-18 Problem 17-19
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Problem 17-12 100.00 Interest rate 7.00% Cash for annual dividend ($millions) 7.00 Cash for one-time dividend ($millions) 100.00 100.00 a. Since there is no change in the value of the cash flows, there will be no change in stock price. b. c. Given these price reactions, will this decision benefit investors? Problem 17-13 Corporate Tax Rate 35.00% PV of infinite cash flow stream ($millions) $65.00 PV of one time payment ($millions) $100.00 a. Stock value will increase by $35.00 million. b. The value of Kay will fall by $100.00 million. c. The one time payment is better because of the tax savings. Problem 17-14 Personal tax rate 15.00% PV of infinite cash flow stream ($millions) 1,214.29 PV of one time payment ($millions) 100.00 a. The value of Kay will remain the same. b. The value of Kay will fall by 85.00 million. c. Depends on investor preferences. Assume capital markets are perfect. Kay Industries currently has $100 million invested in short-term Treasury securities paying 7%, and it pays out the interest payments on these securities as a dividend. The board is considering selling theTreasury securities and paying out the proceeds as a one-time
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This note was uploaded on 02/02/2012 for the course BUS 438 taught by Professor Dutt during the Winter '12 term at Cal Poly.

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Chapter17_xlsSol - Problems Problem 17-12 Problem 17-13...

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