Reference no: EM131903867
National Business Machine Co. (NBM) has $9 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets.
The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 3 percent or a 5 percent preferred stock. IRS regulations allow the company to exclude from taxable income 70 percent of the dividends received from investing in another company's stock.
Another alternative is to pay out the cash now as dividends. This would allow the shareholders to invest on their own in Treasury bills with the same yield, or in preferred stock.
The corporate tax rate is 35 percent. Assume the investor has a 31 percent personal income tax rate, which is applied to interest income and preferred stock dividends. The personal dividend tax rate is 10 percent on common stock dividends. Suppose the company reinvests the $9 million and pays a dividend in three years.
a) What is the total aftertax cash flow to shareholders if the company invests in T-bills? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Value in three years $
b) What is the total aftertax cash flow to shareholders if the company invests in preferred stock? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Value in three years $
Suppose instead that the company pays a $9 million dividend now and the shareholder reinvests the dividend for three years.
c) What is the total aftertax cash flow to shareholders if the shareholder invests in T-bills? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Value in three years $
d) What is the total aftertax cash flow to shareholders if the shareholder invests in preferred stock? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)
Value in three years $
|
Find the total value of darlenes assets
: If you put $2,620 in a savings account and make no further deposits, what type of calculation would provide you with the value of the account in 28 years?
|
|
List of some important libc functions that are used
: List of some important libc functions that are used in the reference program: fopen(), fgets(), fprintf(), fclose(), sscanf(), strncpy(), strncmp(), etc.
|
|
What are the percentage return on your investment
: During the year, you received a dividend of $7.3 per share. Today, you sold all your shares for $50.47. What are the percentage return on your investment.
|
|
Determine the required return on unilevers stock
: The risk-free interest rate is 5% and the Unilever's beta coefficient is 1.5. If the market risk premium is 6%, what is the required return on Unilever's stock?
|
|
What is the total aftertax cash flow to shareholders
: What is the total aftertax cash flow to shareholders if the company invests in T-bills?
|
|
Write merge script to correct the missing calorie count info
: Merge - Write MERGE script to correct the missing calorie count information. Use the cals.txt document provided.
|
|
Give some examples of expansion or growth opportunities
: What actions do you think J&J and the other three firms should have taken when they received the stolen property from Stegora?
|
|
Write a c program to implement the function interface
: Write a C program to implement the function interface below as an External function. Test your solution using the stub program shown below.
|
|
How much money do you expect to have at the end
: How much money do you expect to have at the end of your investment horizon if you invest in the mutual fund?
|