Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. nbm has $2 million of extra cash. it has two choic

NBM has $2 million of extra cash. It has two choices to make use of...

70.2K

Verified Solution

Question

Finance

NBM has $2 million of extra cash. It has two choices to make use of the cash. One alternative is to invest the cash in financial assets. The resulted investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 7%, or an 11% preferred stock. The tax law says only 30% of the dividend from the preferred stock investment would be subject to the corporate income tax. Another alternative is to pay out the cash as dividends and let the shareholders invest on their own in T-bills with the same yield. The corporate tax rate is 35%, and the individual tax rate is 31%. Should the cash be paid today or in three years? Which of the two options generates the highest after-tax income for shareholders?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Advance Math
1.2K views

prove that the Luxemberg norm is a norm on L_phi

Biology
1.2K views

This structure is the Cerebrum O Pituitary gland Diencephalon O Brainstem

Geometry
1.2K views

Question 18 4 points A pyramid is created with a right triangle base and two...

Basic Math
1.2K views

Question 15 of 21 Production in Units Production Costs Blossom Corporation manufactures a single product...

Basic Math
1.2K views

Question 6 Graph y 6 7 LAS 3 ON muy Bed N La G T...

Calculus
1.2K views

The amount of bacteria present in a medium after thours is given by A t...

Calculus
1.2K views

A famous painting was sold in 1945 for 21 930 In 1993 the painting was...

Algebra
1.2K views

9 10 10 ys y2 x 7 zoom in

Accounting
1.2K views

All pictures are of the same problem but separate parts. Please try and organize...

Accounting
1.2K views

please help! just need d, everything else is correct! ...

Accounting
1.2K views

Felix & Co. reports the following information about its sales and cost of sales. ...

Finance
1.2K views

Elliott is trying to determine it's optimal capital structure. The company's capital structure consists of...