Cash out to investors who would invest in bonds themselves

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Reference no: EM131869181

Having completing its capital spending for the year, Newcaste Ayl has 1,000 extra cash. Two cash distribution strategies are available:

(1) Retain the cash for the purpose of investing in Treasury bonds yielding 8% with the annual returns subsequently distributed to investors as a dividend, or

(2) Paying the cash out to investors who would invest in the bonds themselves.

Problem

Assume that Newcastle Ayl’s tax rate is 23% (0.23). What investor tax rate on dividend payments and interest income would make investors indifferent between the two cash distribution strategies? State your answer as a decimal number rounded off to two points (for example, 0.37).

Reference no: EM131869181

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