Question

Two corporations A and B have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $120 one year from now. Corporation B pays dividends and will have a price of $113 one year from now after paying the dividend. The corporations pay no taxes and investors pay no taxes on capital gains, but pay a 30% income on dividends. What is the value of the dividend that investors expect corporation B to pay one year from today?

          Two corporations A and B have exactly the same risk, and both
have a current stock price of $100. Corporation A pays no dividend
and will have a price of $120 one year from now. Corporation B pays
dividends and will have a price of $113 one year from now after
paying the dividend. The corporations pay no taxes and investors
pay no taxes on capital gains, but pay a 30% income on dividends.
What is the value of the dividend that investors expect corporation
B to pay one year from today?

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two corporations a and b have exactly the same risk and both have a current stock price of 100 corporation a pays no dividend and will have a price of 120 one year from now corporation b pay 57632

Added by Mar-A C.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Supreeta N

05/30/2023

Step 1

For Corporation A, the expected return is (120-100)/100 = 20%. For Corporation B, the expected return is ((113+D)-100)/100, where D is the dividend paid by Corporation B. Show more…

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Two corporations A and B have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $120 one year from now. Corporation B pays dividends and will have a price of $113 one year from now after paying the dividend. The corporations pay no taxes and investors pay no taxes on capital gains, but pay a 30% income on dividends. What is the value of the dividend that investors expect corporation B to pay one year from today?

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