Suppose That the Pre-Tax Holding Period Returns on Two Shares

question 9

Multiple Choice

Suppose that the pre-tax holding period returns on two shares are the same. Share A has a high dividend payout policy and share B has a low dividend payout policy. If you are a high tax rate individual and do not intend to sell the shares during the holding period, ________.

• A)Share A will have a higher after-tax holding period return than Share B
• B)the after-tax holding period returns on Shares A and B will be the same
• C)Share B will have a higher after-tax holding period return than Share A
• D)it is impossible to determine which share will have a higher after-tax holding period return given the information available

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Definitions:

Perpetual Inventory System

An inventory management system where updates to inventory records are made in real-time with each sale or purchase, providing a continuous record of inventory levels.

Discount Period

The timeframe during which a discount is offered for prompt payment on sales.

Merchandise Sold

The products that a retailer, wholesaler, or distributor has sold to customers during a specific period.

Gross Profit

The income left over for a company once it has covered the costs involved in manufacturing and selling its products, or in offering its services.