Calculate the after tax return

Assignment Help Financial Management

Reference no: EM131317408

General Manufacturing Company (GMC) follows a policy of paying out 50 percent of its net income as cash dividends to its shareholders each year. The company plans to do so again this year, during which GMC earned $100 million in net profits after tax. The company has 40 million shares outstanding and pays dividends annually.

Assume that an investor purchased GMC stock a year ago at $45. The investor, who faces a personal tax rate of 15 percent on both dividend income and on capital gains, plans to sell the stock very soon. Transactions costs are negligible.

a. Calculate the after-tax return this investor will earn if she sells GMC stock at the current $54 stock price prior to the ex-dividend date.

b. Calculate the after-tax return the investor will earn if she sells GMC stock on the ex-dividend date, assuming that the price of GMC stock falls by the dividend amount on the ex-dividend date.

c. Calculate the after-tax return the investor will earn if she sells GMC stock on the ex-dividend date, assuming that the price of GMC stock falls by one half the dividend amount on the ex-dividend date.

Reference no: EM131317408

Questions Cloud

Analyze the arguments of the defendant in each given case : Summation of cases: Once you locate your cases, you are to summarize the cases, explain the arguments of the defendant in each case, and interpret the ruling of the Supreme Court. Also discuss if you agree or disagree with these rulings.

How to determine the level of risk management of a project : Imagine the team working on the satellite development project was a virtual team in which team members were unable to meet in person. Explain the expected impact on the project, and suggest two (2) ways the team could maintain its current goal in ..

What is the expected price of gmc stock : What is the expected price of GMC stock on the ex- dividend date if there are no personal taxes on dividend income received?

Prepare a master budget for freshpak corporation : Prepare a master budget for FreshPak Corporation for the next year. Assume an income tax rate of 40 percent - Construct an Excel spreadsheet to solve the preceding requirement. Show how the solution will change if the information changes.

Calculate the after tax return : Calculate the after-tax return this investor will earn if she sells GMC stock at the current $54 stock price prior to the ex-dividend date.

Beta coefficient important when constructing a portfolio : What Makes a Beta Coefficient so Great? What makes a beta coefficient important when constructing a portfolio? What can You Diversify? If portfolio risk equals market risk, can the portfolio risk be diversifiable?

About the training and development : Toyota had several recalls and issues in 2010 where many blamed their HR department not manufacturing on why Toyota was struggling. We know the purpose of training is to make sure that employees have the right skills and capabilities to identify and ..

Inference analysis five research hypotheses : This section is concerned with your thoughts and current practices regarding the team effectiveness. Please circle the number which best describes your opinion.

What is companys nominal dividend payment per share quarter : If the company has 40 million shares outstanding and pays dividends quarterly, what is the company's nominal dividend payment per share each quarter?

User Account

All Pages