s 100 shareholders, you among them. Each shareholder owns $25 worth of stock. In
ID: 2798189 • Letter: S
Question
s 100 shareholders, you among them. Each shareholder owns $25 worth of stock. In ul owns 60 shares (for a firm total of 500 shares) and is trying to fire the addition, Mr. Doubtf management. In an attempt to buy him off, management has offered to buy Mr 24 shares for $29. What will the new share price be? A $1.73 B $29.00 C $17.0o D $5.00 A firm has 2000 shares. Both you and Ms. Doubtful are among them. Ms. Doubtful owns 175 shares and is trying to fire the management, so management is offering to buy her out for a S10 a share premium. The current market price per share is $30. What will be the value of each of your shares if Ms. Doubtful takes this offer? 25 A $39.5o 8 $30.00 C $29.04 D $34.75 26 In which of the following scenarios might a dividend or stock repurchase increase firm value? A The firm issues debt in order to make the dividend payments or repurchase the stoclk B Dividend payments and stock repurchases neither increase nor decrease firm value The firm makes a big dividend payment to its shareholders when management realizes that it is close to bankruptcy The firm repurchases its shares in lieu of undertaking some projects with small, positive NPVs Assume that dividends are taxed at your marginal tax rate of 25% while capital gains are taxed at 15%. How m uch more will you net if you earn $1000 in capital gains than if the $1000 were dividend income? A $150.00 B $170.00 C $250.00 D $100.00 27 Assume that dividends are taxed at your marginal tax rate of 38% while capital gains are taxed at 1S96. How much more will you net if you earn S 1200 in capital gains than if the $1200 were 28 dividend income? A $276.00 B $180.00 C $456.00 D $300.00Explanation / Answer
1.share price will remain the same at 29
2.
=(2000*30-175*40)/(2000-175)=29.04
3.
the firm issues debt in order to make the diivdned payments or repurchase the stock
4. dividend tax=1000*25%=250
capital gains tax=1000*15%=150
Eanrings extra in case of capital gains=250-150=100
5. dividend tax=1200*38%=456
capital gains tax=1200*15%=180
Eanrings extra in case of capital gains=456-180=276
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