Firm A and B are two firms with the same business risk but different policies. Firm A pays no dividend, whereas firm b h
Posted: Mon May 02, 2022 8:58 am
Firm A and B are two firms with the same business risk but
different policies. Firm A pays no dividend, whereas firm b has an
expected dividend yield of 4.5 per cent. Suppose the capital gains
tax is zero, whereas the average income tax rate is 35 per cent.
Firm A has an expected earnings growth rate of 15 per cent
annually, and its share price is expected to grow at this same
rate. If the after-tax expected returns on the two shares are equal
(because they are in the same risk class), what us the pretax
required return on firm B’s shares?
different policies. Firm A pays no dividend, whereas firm b has an
expected dividend yield of 4.5 per cent. Suppose the capital gains
tax is zero, whereas the average income tax rate is 35 per cent.
Firm A has an expected earnings growth rate of 15 per cent
annually, and its share price is expected to grow at this same
rate. If the after-tax expected returns on the two shares are equal
(because they are in the same risk class), what us the pretax
required return on firm B’s shares?