To determine: The after-tax cash flow to the shareholders if invested in T-Bills, after-tax cash flow to the shareholders if invested in
Introduction: The term dividends allude to that portion of proceeds of an organization which is circulated by the organization among its investors. It is the remuneration of the investors for investments made by them in the shares of the organization.
Answer to Problem 19QP
The after-tax cash flow to the shareholders if invested in T-Bills is $4,053,154.23, after-tax cash flow to the shareholders if invested in preferred stock is $4,361,828.43, the future value of T-Bills is $4,067,483.35 and the future value of preferred stock investment is $4,234,702.69.
Explanation of Solution
Option 1: If the company invest money currently
Determine the after-tax yield of corporate investment in T-bills
Therefore the after-tax yield of corporate investment in T-bills is 1.95%
Determine the future value of investment of corporate investment in T-bills
Therefore the future value of investment of corporate investment in T-bills is $4,768,416.74
Determine the after-tax cash flow to the shareholders if invested in T-Bills
Therefore the after-tax cash flow to the shareholders if invested in T-Bills is $4,053,154.23
Determine the after-tax corporate dividends if invested in preferred stock
Using a excel spreadsheet we calculate the after-tax coporate dividends as,
Excel Spreadsheet:
Therefore the after-tax corporate dividends if invested in preferred stock is $201,375
Determine the after-tax yield of corporate investment in preferred stock
Therefore the after-tax yield of corporate investment in preferred stock is 4.48%
Determine the future value of investment of corporate investment in preferred stock
Therefore the future value of investment of corporate investment in preferred stock is $5,131,562.86
Determine the after-tax cash flow to the shareholders if invested in preferred stock
Therefore the after-tax cash flow to the shareholders if invested in preferred stock is $4,361,828.43
Option 2: If the company pay dividend currently
Determine the after-tax payments to shareholders
Therefore the after-tax payments to shareholders is $3,825,000
Determine the after-tax individual dividend yield on T-Bills
Therefore the after-tax individual dividend yield on T-Bills is 2.07%
Determine the future value if individual invest in T-Bill
Therefore the future value if individual invest in T-Bill is $4,067,483.35
Determine the after-tax corporate dividends if individual invest in preferred stock
Using a excel spreadsheet we calculate the after-tax coporate dividends as,
Excel Spreadsheet:
Therefore the after-tax corporate dividends if individual in invest preferred stock is $131,962.50
Determine the after-tax yield preferred dividend yield
Therefore the after-tax yield preferred dividend yield is 3.45%
Determine the future value if individual invest in preferred stock
Therefore the future value if individual invest in T-Bill is $4,234,702.69
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Chapter 19 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning