Two Corporations a and B Have Exactly the Same Risk

question 64

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 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 tax of 30% 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) None of the above

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Definitions:

Human Resource Management

The strategic approach to the effective management of people in an organization, which helps to gain a competitive advantage. It includes recruiting, training, performance appraisal, and employee retention.

Labor Problem

Issues and disputes that arise in the workplace between employers and employees, often involving wages, working conditions, and workers' rights.

Management Attitude

Refers to the perspectives, beliefs, or stances that management personnel hold towards workers, workplace policies, business objectives, and other management-related aspects.

Market Imperfections

Situations in which market conditions diverge from the ideal of perfect competition, leading to inefficiencies such as monopolies or lack of information.