Pls double check your answer to make sure its correct please The HNH Corporation will pay a constant dividend of $4.00 per share, per year, in perpetuity. Assume all investors pay a 15% tax on dividends and that there is no capital gains tax. Suppose theother investments with equivalent risk to HNH stock offer an after-tax return of 10%.a. What is the price of a share of HNH stock?b. Assume that management makes a surprise announcement that HNH will no longer pay dividends but will use the cash to repurchase stock instead. What is the price of a share of HNH stocknow?a. What is the price of a share of HNH stock?The price is $ per share. (Round to the nearest cent.)

Price of the stock is the PV of future dividends. Now, dividends distributed are taxed at 15%.…

Answered: a. What is the price of a share of HNH…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A Corporation will pay a dividend of $1.75 per share at this year's end and a dividend of $2.25 per share at the end of next year. It is expected that the price of its stock will be $42 per share after two years. If the firm has an equity cost of capital of 9%, what is the maximum price that a prudent investor would be willing to pay for a share of the stock today? Do not include a dollar sign.

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a. What is the price of a share of HNH stock? b. Assume that management makes a surprise announcement that HNH will no longer pay dividends but will use the cash to repurchase stock instead. What is the price of a share of HNH stock now?