Question

Assume capital markets are perfect. Kay Industries currently has $150 million invested in short-term Treasury securities paying 6%, and it pays out the interest payments on these securities each year as a dividend. The board is considering selling the Treasury securities and paying out the proceeds as a one-time dividend payment. Assume that Kay must pay a corporate a rate of 35%, and investors pay no taxes. a. If the board went ahead with this plan, what would happen to the value of Kay Industries upon the announcement of a change in policy? b. What would happen to the value of Kay Industries on the ex-dividend date of the one-time dividend? c. Given these price reactions, will this decision benefit investors? a. If the board went ahead with this plan, what would happen to the value of Kay Industries upon the announcement of a change in policy? (Select the best choice below.) 0 A. O B. O C. O D. The value of Kay would rise by $150x35%-$52.5 million The value of Kay would rise by $150 million. The value of Kay would fall by $150 million. The value of Kay would remain the same b. What would happen to the value of Kay Industries on the ex-dividend date of the one-time dividend? (Select the best choice below.) O A. The value of Kay would rise by $150 million. B. It's difficult to tell because the price reaction depends on investor preferences D. The value of Kay would remain the same. c. Given these price reactions, will this decision benefit investors? (Select the best choice below.) O A. It's difficult to tell because the price reaction depends on investor preferences O B. It will neither benefit nor hurt investors. C it will bAnefit invastnrs Click to select your answer

Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins 義Cut 短 Σ AutoSum , ta copy." Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛 Conditional Format C Insert Delete Format Sort &Find & Format Painter 袖 2 Clear , Formatting ▼ as Table-styles ▼ Filter Select ▼ ▼ ▼ Clipboard Font Cells dting Alignment UN12 UK UL UN UQ UR US UX UI UJ UO UP UT UV UW UM KAY INDUSTRIES ASSUME THAT CAPITAL MARKETS ARE PERFECT TAX = 35% 4 THE VALUE OF KAY WOULD RISE BY $150 X 35% = $52.5 MILLION 6 THE VALUE OF KAY WOULD FALL BY $150 MILLION 9 C IT WILL BENEFIT INVESTORS 10 12 13 14 15 16 18 19 | HIGH LOW TARGET PRICE :4 STOCK DIV , NAV HEDGE FUND MF EV PE EPS DIV , ABNORMAL , deberk , MARGIN MONEY , marginal tx PB ROPI . ApV Ross e EVA MVAI 26-05-2019