after completing its capital spending for the year, carlson manufacturing has $1,800 extra cash. carlson's manager...

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after completing its capital spending for the year, carlsonmanufacturing has $1,800 extra cash. carlson's manager must choosebetween investing the cash in treasury bonds that yield 3 percentor paying the cash out to investors who would invest in the bondsthemselves. a. if the corporate tax rate is 23 percent, whatpersonal tax rate would make the investors equally to receive thedividend or to let carlson invest the money? b. id the answer to(a) reasonable? c. suppose the only investment choice is apreferred stock that yields 6 percent. the corporate dividendexclusion of 50 percent applies. what personal tax rate will makethe stockholders indifferent to the outcome of carlson's dividenddecision? d. is this a compelling argument for a lowdividend-payout ratio?

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Calculation of the Personal Tax Rate Let x be the ordinary income tax rate The individual receives an aftertax dividend of After Tax dividend 18001x Which she invests in Treasury bonds The Treasury bond will generate after tax cash flows to the investor of After tax cash flow from treasure bonds 18001x10031x If the See Answer

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after completing its capital spending for the year, carlsonmanufacturing has $1,800 extra cash. carlson's manager must choosebetween investing the cash in treasury bonds that yield 3 percentor paying the cash out to investors who would invest in the bondsthemselves. a. if the corporate tax rate is 23 percent, whatpersonal tax rate would make the investors equally to receive thedividend or to let carlson invest the money? b. id the answer to(a) reasonable? c. suppose the only investment choice is apreferred stock that yields 6 percent. the corporate dividendexclusion of 50 percent applies. what personal tax rate will makethe stockholders indifferent to the outcome of carlson's dividenddecision? d. is this a compelling argument for a lowdividend-payout ratio?