Is this a compelling argument for low dividend-payout ratio

Reference no: EM131490737

After completing its capital spending for the year, Carlson Manufacturing has $1,000 extra cash. Carlson’s managers must choose between investing the cash in Treasury bonds that yield 6 percent or paying the cash out to investors who would invest in the bonds themselves.

a. If the corporate tax rate is 35 percent, what personal tax rate would make the investors equally willing to receive the dividend or to let Carlson invest the money?

Personal tax rate %

b. Is the answer to (a) reasonable?

Yes

c. Suppose the only investment choice is a preferred stock that yields 9 percent. The corporate dividend exclusion of 70 percent applies. What personal tax rate will make the stockholders indifferent to the outcome of Carlson’s dividend decision? (Round your answer to 2 decimal places. (e.g., 32.16))

Personal tax rate %

d. Is this a compelling argument for a low dividend-payout ratio?

Yes

Reference no: EM131490737

Questions Cloud

What is the expected growth rate for residual earnings : A share traded at $26 at the end of 2012 with a price-to-book ratio of 2.0. Analysts were forecasting earnings per share of $2.60 for 2013.

Similarities and differences between u.s. gaap and ifrs : Are there major similarities and differences between U.S. GAAP and IFRS?

What is the expected return from buying this stock : A share traded at $26 at the end of 2012 with a price-to-book ratio of 2.0. Analysts were forecasting earnings per share of$2.60 for 2013.

Brief description of the cognitive behavior : Give a brief description of the Cognitive Behavior and explains any correlations between structure theories

Is this a compelling argument for low dividend-payout ratio : After completing its capital spending for the year, Carlson Manufacturing has $1,000 extra cash. Is this a compelling argument for a low dividend-payout ratio?

What is the growth rate for residual earnings : Reverse Engineering Earnings Forecasts (Easy) The equity of a firm trades at 2.6 times book value of $239 .0 million at the end of 2012 and your required.

How augustine and aquinas would have solved given problem : how Augustine and Aquinas would have solved the problem based on what we learned about each here in the materials and course, and if they differ, why?

What is the expected return if no growth is expected : Expected Returns for Different Growth Rates (Easy) A firm whose shares are trading at 2.2 times book value is forecasted to earn a return on book value.

Find the purchase price of this perpetuity : Given the effective interest rate is 9% annually, find the purchase price of this perpetuity.

User Account

All Pages