Suppose that investors pay 50 tax on dividends and 20 tax

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Reference no: EM13573356

The expected pretax return on three stocks is divided between dividends and capital gains in the following way:

Stock	Expected Dividend	Expected Capital Gain
A	$0	$18
B	9	9
C	18	0

If each stock is priced at $100, what are the expected net returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35%, and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock	Pension	Investor Corporation	Individual
A	%	%	%
B	%	%	%
C	%	%	%

Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an 20% return after tax, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Stock	P₀
A	$
B
C

Reference no: EM13573356

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