Make stockholder indifferent to outcome of dividend decision

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Reference no: EM131081824

After completing its capital spending for the year, Carlson Manufacturing has $1,100 extra cash. Carlson’s managers must choose between investing the cash in Treasury bonds that yield 5 percent or paying out the cash to investors who would invest in the bonds themselves.

If the corporate tax rate is 30 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 = ______ %

Suppose the only investment choice is a preferred stock that yields 8 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?

Personal tax rate = ______ %

Reference no: EM131081824

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