Stock on the? ex-dividend date of the? one-time dividend

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Assume perfect capital markets. Kay Industries currently has $100 million invested in? short-term treasury bills paying 6.5 %, and it pays out the interest payments on these securities as a dividend. The board is considering selling the treasury bills and paying out the proceeds as a? one-time dividend payment. Assume that investors pay a 12 % tax on dividends but no capital gains taxes and that Kay does not pay corporate taxes.

b. What would happen to the value of? Kay's stock on the? ex-dividend date of the? one-time dividend?

The value of Kay would remain the same.

The value of Kay would fall by $ 100 million.

The value of Kay would fall by $100-$100×12%=$88 million.

The value of Kay would rise by $ 100 million.

c. Given these price? reactions, will this decision benefit? investors?

Reference no: EM132459758

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