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.
$$\begin{array}{l}\begin{array} { | l | r | } \hline\text { DATA }\\\hline \text { Investor return } & 9 \% \\\hline \text { Dividend amount } & \$ 2.50 \\\hline \text { Tax rate } & 20 \% \\\hline \text { Future price prediction } & \$ 30.00 \\\hline\end{array}\end{array}$$

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Definitions:

Corporate Social Responsibility

A business strategy where firms incorporate considerations related to society and the environment into their operational activities and stakeholder engagements.

Stakeholders

Individuals, groups, or organizations that have an interest or concern in a business or project and can be affected by its outcomes.

End-Recipients

The final users or beneficiaries of a product, service, or information.

Triple Bottom Line

A business framework that encourages companies to focus equally on social, environmental, and financial performance, often summarized as people, planet, and profits.