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What net tax savings per share would result

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Reference no: EM131317330

Suppose that all capital gains are taxed at a 20% rate, and that the dividend tax rate is 40%. ABC Corp is currently trading for $25, and is about to pay a $3 special dividend.

a. What is ABC Corp's share price just after the dividend is paid?

b. Suppose ABC Corp announces that it would do a share repurchase instead of the special dividend. What net tax savings per share would result from this decision for an investor?

c. What would happen to ABC Corp's share price upon the announcement of this decision?

Reference no: EM131317330

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