Corporate Finance Question from McGraw Hill Connect Homework 11

The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Stock Expected Dividend Expected Capital Gain A $0 $36 B 18 18 C 36 0 a. If each stock is priced at $100, what are the expected net returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35%, and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock Pension Investor Corporation Individual A % % % B % % % C % % % b. Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an 8% return after tax, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock P0 A $ B C