Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. the gecko company and the gordon company are two f

The Gecko Company and the Gordon Company are two firms whose business risk is the...

60.1K

Verified Solution

Question

Finance

image
The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies. Gecko pays no dividend, whereas Gordon has an expected dividend yield of 5 percent. Suppose the capital gains tax rate is zero, whereas the income tax rate is 25 percent. Gecko has an expected earnings growth rate of 8 percent annually, and its stock price is expected to grow at this same rate. If the aftertax expected returns on the two stocks are equal (because they are in the same risk class), what is the pretax required return on Gordon's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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

1. Use a Laplace transform to solve the initial value problem: 9y\" + y = f(t),...

Accounting
1.2K views

Diaz Company issued $101,000 face value of bonds on January 1, 2018. The bonds had a...

Basic Math
1.2K views

Listed below are amounts of strontium-90 (in millibecquerels, or mBq) in a simple random sample...

Basic Math
1.2K views

A right circular cone has a radius of 2x + 4 and a height `1`...

Algebra
1.2K views

The number 0 351 rounded to the nearest hundredth is

Accounting
1.2K views

I contributed a lot of money to...

Accounting
1.2K views

Explain (120150 words) triple bottom line principles used in work planning. (Please type up your...

Accounting
1.2K views

Download the Name Personal Monthly Budget workbook and rename it XLastname Personal Monthly Budget replacing...

Accounting
1.2K views

(2.1) Absolute Valuation Model The JMR Company is a family business that currently uses no...

Accounting
1.2K views

Cmo se debe revelar la ganancia o prdida que se considera poco frecuente? R:...

Accounting
1.2K views

Case Study: Risk Management in Accounting in Unstable Political Nations Introduction: XYZ Accounting Firm,...

Finance
1.2K views

plz use tour own words at least 500 words type the answer plz...