Two Corporations a and B Have Exactly the Same Risk

question 40

Multiple Choice

Two corporations A and B have exactly the same risk, and both have a current stock price of $100. Corporation A pays no dividend and will have a price of $120 one year from now. Corporation B pays dividends and will have a price of $113 one year from now after paying the dividend. The corporations pay no taxes and investors pay no taxes on capital gains, but pay a 30 percent income tax on dividends. What is the value of the dividend that investors expect corporation B to pay one year from today?

• A)$7
• B)$13
• C)$10
• D)$20

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Definitions:

Need For Power

A personal drive to influence, control or have authority over others, as described in McClelland's theory of needs.

ERG Theory

A theory in psychology proposed by Clayton Alderfer that categorizes human needs into three categories: Existence, Relatedness, and Growth, and suggests that these needs can be pursued simultaneously.

Activated Need

A psychological or physiological requirement that motivates behavior towards its fulfillment.

Hygiene Factors

In the job context are sources of job dissatisfaction.