Assume the tax on capital gains is 40 6 you are

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Assume the tax on capital gains is 40%. 6 You are comparing the dividend policies of three dividend paying utilities. You have collected the following information on the ex-dividend behavior of these firms. NE Gas SE Bell Western Electric Price before 50 70 100 Price after 48 67 95 dividends / share 4 4 5 If you were a tax exempt investor, which company would you use to make dividend arbitrage profits? How would you go about doing so?
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Corporate Finance - 2018 Suresh Herur 7 LMN Corp, a real estate corporation is planning to pay a dividend of $0.50 per share. Most of the investors in LMN Corp are other corporations that pay 40% of their ordinary income and 28% of their capital gains as taxes. However they are allowed to exempt 85% of the dividends they receive from taxes. If the shares are selling at $10 per share, how much would you expect the stock price to drop on the ex-dividend day? 8 Lee Ann Inc., has declared a $6 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15%. Lee Ann sells for $80 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be ? 9 Roll Corporation (RC) currently has 150,000 shares of stock outstanding that sell for $65 per share. Assuming no market imperfections or tax effects exist, what will the share price be after : a) RC has a five- for- three stock split ? b) RC has a 15% stock dividend ? c) RC has a 42.5% stock dividend ? d) RC has a four- to- seven reverse stock split ? Determine the new number of shares outstanding in parts a) through d) 10 Flychucker Corporation is evaluating an extra dividend versus a share repurchase. In either case $5000 would be spent. Current earnings are $0.95 per share, and the stock currently sells for $40 per share. There are 200 shares outstanding. Ignore taxes and other imperfections in answering parts a) and b) a) Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth b) What will be the effect on Flychuckers’s EPS and PE ratio under the two different scenerios c) In the real world which of these actions would you recommend? Why?
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  • Fall '19
  • Dividend, Dividend yield, P/E ratio

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