Consider Two Corporations, G and H, That Have Exactly the Same

question 42

Multiple Choice

Consider two corporations, G and H, that have exactly the same risk. They both have a current stock price of $60. Corporation G pays no dividend and will have a price of $66 one year from now. Corporation H pays dividends and will have a price of $63 one year from now after payment of a dividend. Corporations pay no income taxes. Investors pay no taxes on capital gains, but they pay a 30% income tax on dividends. What is the value of the dividend that investors expect Corporation G to pay?

• A) $4.29.
• B) $3.00.
• C) $3.15.
• D) $3.30.