Reference no: EM132486008
Point 1: National Business Machine Co. (NBM) has $5 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 2 percent or a 4 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 15 percent on common stock dividends.
- Suppose the company reinvests the $5 million and pays a dividend in three years.
Question 1: 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.)
Question 2: 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.)
- Suppose instead that the company pays a $5 million dividend now and the shareholder reinvests the dividend for three years.
Question 3: 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.)
Question 4: 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.)
Determine what is the total of the trial balance
: Assuming all of the accounts have normal balances, Determine what is the total of the trial balance? $532,000,Accounts Payable $15,000
|
Discuss several warning signs that lead you
: You suspect that a good friend is considering suicide. How would you respond to the following:
|
Stage of piaget cognitive development
: John knows that the ball of string has the same amount of string as when it is unraveled into one long piece. Which stage of Piaget's cognitive development
|
Calculate the firms before-tax and after-tax cost of debt
: Calculate The firms before-tax and after-tax cost of debt, The weighted average cost of capital up to the point when retained earnings are exhausted.
|
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? (Enter your answer in dollars, not millions of dollars
|
What percentage of bristols assets were obtained
: Bristol Company had $100,000 of assets, $40,000 of liabilities and $25,000 of retained earnings. What percentage of Bristol's assets were obtained
|
Development of sexuality
: Adolescence, derived from the Latin word "adolescere" meaning "to grow up" is a critical developmental period. During adolescence, major biological
|
Discuss how is related to ethical considerations
: Explain the nature of the agency conflict between owners and managers arises from the above scenario. Discuss how is it related to ethical considerations
|
Weaknesses of social skills training
: What, if any, are weaknesses of social skills training? And when is a prime time to start this training, is earlier the better? Or does age not matter in the ca
|