Firm X will a dividend of $10 next year and its stock is expected to sell at $100 after the payment.Firm Y pays no dividend but its stock is expected to sell at $110.Dividends are taxed at 30% and capital gains are untaxed.If both stocks offer an after-tax return of 8%,what is the price of the two stocks?
A) Price of X = $101.85; price of Y = $101.85
B) Price of X = $99.07; price of Y = $101.85
C) Price of X = $100; price of Y = $101.85
D) Price of X = $99.07; price of Y = $100

Question

Quizplus · Accepted Answer

Price X = ($100 + (1 − 0.3) × $10) / 1.08 = $99.07; Price of Y = $110 / 1.08 = $101.85

Firm X Will a Dividend of $10 Next Year and Its