Assume perfect capital markets. Kay Industries currently has 100 million invested in short-term Treasury securities pay
Posted: Sun Jul 03, 2022 12:53 pm
Assume perfect capital markets. Kay Industries currently has 100million invested in short-term Treasury securities paying 7% ,and it pays out the interest payments on these securities as adividend. The board is considering selling the Treasury securitiesand paying out the proceeds as a one-time dividend payment.
a. If the board went ahead with this plan, what would happen tothe value of Kay stock upon the announcement of a change inpolicy?
b. What would happen to the value of Kay stock on theex-dividend date of the one-time dividend?
c. Given these price reactions, will this decision benefitinvestors?
Question content area bottom
Part 1 a. If the board went ahead with this plan, what wouldhappen to the value of Kay stock upon the announcement of a changein policy? (Select the best choice below.)
A. The value of Kay would rise by 100 million.
B. The value of Kay would fall by 100 million.
C. The value of Kay would remain the same.
D. It's difficult to tell because the price reaction depends oninvestor preferences.
Part 2 b. What would happen to the value of Kay stock on theex-dividend date of the one-time dividend? (Select the bestchoice below.)
A. It's difficult to tell because the price reaction depends oninvestor preferences.
B. The value of Kay would fall by 100 million.
C. The value of Kay would remain the same.
D. The value of Kay would rise by million.
Part 3 c. Given these price reactions, will this decisionbenefit investors? (Select the best choice below.)
A. It will benefit investors.
B. It will neither benefit nor hurt investors.
C. It's difficult to tell because the price reaction depends oninvestor preferences.
D. It will hurt investors.
a. If the board went ahead with this plan, what would happen tothe value of Kay stock upon the announcement of a change inpolicy?
b. What would happen to the value of Kay stock on theex-dividend date of the one-time dividend?
c. Given these price reactions, will this decision benefitinvestors?
Question content area bottom
Part 1 a. If the board went ahead with this plan, what wouldhappen to the value of Kay stock upon the announcement of a changein policy? (Select the best choice below.)
A. The value of Kay would rise by 100 million.
B. The value of Kay would fall by 100 million.
C. The value of Kay would remain the same.
D. It's difficult to tell because the price reaction depends oninvestor preferences.
Part 2 b. What would happen to the value of Kay stock on theex-dividend date of the one-time dividend? (Select the bestchoice below.)
A. It's difficult to tell because the price reaction depends oninvestor preferences.
B. The value of Kay would fall by 100 million.
C. The value of Kay would remain the same.
D. The value of Kay would rise by million.
Part 3 c. Given these price reactions, will this decisionbenefit investors? (Select the best choice below.)
A. It will benefit investors.
B. It will neither benefit nor hurt investors.
C. It's difficult to tell because the price reaction depends oninvestor preferences.
D. It will hurt investors.