The JRN Corporation Will Pay a Constant Dividend of $5

question 1

Multiple Choice

The JRN Corporation will pay a constant dividend of $5 per share per year in perpetuity. Assume that all investors pay a 25% tax on dividends and that there is no capital gains tax. The cost of capital for investing in JRN stock is 10%. Assume that management makes a surprise announcement that JRN will no longer pay dividends but will use the cash to repurchase stock instead. The price of a share of JRN's stock is now closest to ________.

• A) $40.00
• B) $50.00
• C) $60.00
• D) $100.00

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Definitions:

Offer Can Be Revoked

The proposition that an offer can be withdrawn by the offeror before it is accepted by the offeree, making it legally void.

Performance of an Act

The execution or accomplishment of an action, task, or function, often specified in a legal context or contractual obligation.

Made Known

To reveal or disclose information or knowledge that was previously unknown or hidden.

Request to Negotiate

An invitation or proposal to start negotiation discussions about a specific issue, contract, or arrangement.