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David Corporation has assets with a market value of $600 million, $80 million of which...

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Finance

  1. David Corporation has assets with a market value of $600 million, $80 million of which are cash. It has debt of $250 million, and 20 million shares outstanding. Assume perfect capital markets.
    1. (3 marks)

  1. Assume that the dividend tax rate is 38%. The stock price of Ginny Corporation closed today at $30. Ginny Corporation would pay $4 special dividend per share, and tomorrow is the ex-dividend date.
    1. Assume that there is no tax on capital gains. Calculate the expected stock price on tomorrow morning. (4 marks)
    2. Assume that the tax rate on capital gains is 34%. Calculate the effective dividend tax rate. (4 marks)

Assume that the tax rate on capital gains is 34%. Calculate the expected stock price on tomorrow morning.

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