KirkWood Corp.(KC) and Lenny Ltd.(LL) are in the same risk class. KC is expected to pay $2 per share dividend next year when the stock will sell for $30. LL has a no-dividend policy. Currently KC stock is selling for $40 per share. KC shareholders expect a $4 capital gain over the next year. Capital gains are taxed at 25%, and dividends are taxed at 30%. a.What is the current price of KC stock? b.If capital gains are also taxed at 28%, what is the share price of KC stock? c.Explain the result you found in part (b).
KirkWood Corp.(KC) and Lenny Ltd.(LL) are in the same risk class. KC is expected to pay $2 per share dividend next year when the stock will sell for $30. LL has a no-dividend policy. Currently KC stock is selling for $40 per share. KC shareholders expect a $4 capital gain over the next year. Capital gains are taxed at 25%, and dividends are taxed at 30%. a.What is the current price of KC stock? b.If capital gains are also taxed at 28%, what is the share price of KC stock? c.Explain the result you found in part (b).
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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KirkWood Corp.(KC) and Lenny Ltd.(LL) are in the same risk class. KC is expected to pay $2 per share dividend next year when the stock will sell for $30. LL has a no-dividend policy. Currently KC stock is selling for $40 per share. KC shareholders expect a $4
a.What is the current price of KC stock?
b.If capital gains are also taxed at 28%, what is the share price of KC stock?
c.Explain the result you found in part (b).
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