Investors require an after-tax rate of return of 10% on their stock investments. Assume that...
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Investors require an after-tax rate of return of 10% on their stock investments. Assume that the tax rate on dividends is 30% while capital gains escape taxation. A firm will pay a $1 per share dividend 1 year from now, after which the firm's stock is expected to sell at a price of $10. a. Find the current price of the stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current price b. Find the expected before-tax rate of return for a 1-year holding period. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Before-tax rate of return c. Now suppose that the dividend will be $2 per share. If the expected after-tax rate of return is still 10% and investors still expect the stock to sell at $10 in 1 year, at what price must the stock now sell? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Price d. What is the before-tax rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Before-tax rate of return
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