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Posted by: Homeworkhelp
Price Quoted by Student: $4
Posted On: 2011-03-21 01:01:38
 
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15-2 Richard Ingram just bought 1,000 shares of Sisson Electronics at $40 per share.  He plans to

 

ANSWER KEY SOLUTION 15-2. Richard Ingram just bought 1,000 shares of Sisson Electronics at $40 per share

 

Dividend Irrelevance and Taxes

 

15-2.    Richard Ingram just bought 1,000 shares of Sisson Electronics at $40 per share.  He plans to hold the stock for one year before selling.   Sisson is in the process of selecting a new dividend policy.  The firm will either pay out all of its earnings in dividends or retain and reinvest them all.  Analysts expect the stock to be worth $45 in one year’s time if no dividends are paid and $40 if dividends of $5 per share are distributed.  Assume Richard’s marginal tax rate on ordinary income including dividends is 33%, and the capital gains rate is capped at 20%. 

a. How much difference will Session’s decision make in Richard’s after-tax income? 

b. Compare the results of part a. with the results under the tax code in effect in mid 2009 as described on page 48. 

c. Calculate Richard’s pre-tax and after tax returns under both of Sisson’s possible policies.  (Assume the hypothetical tax rates in the problem.)

d. What after tax rate of return would make Richard indifferent between the two policies?


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ANSWER KEY SOLUTION 15-2. Richard Ingram just boug
Price $4
Attachment 1: 15-2 Richard Ingram just.doc
Solution Posted By: Homeworkhelp    Posted on: 21-03-2011