Use the Information for the Question(s)below

question 50

Multiple Choice

Use the information for the question(s) below.
The JRN Corporation will pay a constant dividend of $3 per share,per year,in perpetuity.Assume that all investors pay a 20% tax on dividends and that there is no capital gains tax.The cost of capital for investing in JRN stock is 12%.
-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)$20.00.
• B)$25.00.
• C)$18.00.
• D)$24.00.

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Definitions:

P(A or B)

The probability of event A happening, event B happening, or both events happening.

P(A)

Denotes the probability of event A happening.

P(B)

The probability notation referring to the likelihood of event B occurring.

Independent

Not influenced by or contingent upon others; describes variables that operate without interference from other variables.