Investors Require an After-Tax Rate of Return of 9% on Their

question 49

Essay

Investors require an after-tax rate of return of 9% on their stock investments.The tax rate on dividends is 26%, while capital gains escape taxation.A firm will pay $2.50 per share in dividends one year from now, after which the stock is expected to be at a price of $30.Determine the current stock price and the expected before tax rate of return for a one-year holding period.
$$\begin{array}{l}\begin{array} { | l | r | } \hline\text { DATA }\\\hline \text { Investor return } & 9 \% \\\hline \text { Dividend amount } & \$ 2.50 \\\hline \text { Tax rate } & 20 \% \\\hline \text { Future price prediction } & \$ 30.00 \\\hline\end{array}\end{array}$$

---

Definitions:

Employee Preferences

The specific desires or choices of employees, often regarding workplace conditions, benefits, and types of work.

Operation Efficiency

Refers to the ability of an organization to minimize waste and use resources in the most effective manner to produce goods and services.

Machine Bureaucracy

An organizational form characterized by high specialization, a detailed division of labor, a hierarchy of authority, and a rigid set of rules and regulations.

Automobile Plant

A manufacturing facility specifically designed for the production of automobiles, including assembly and component manufacturing processes.