Kappa Corp and Lambda Corp are identical except that Kappa pays a dividend of $5 per share,while Lambda pays no dividend and uses the cash to repurchase stock.Peter Berngarten owns 100 shares of Kappa.How could he raise the same amount of spending money if instead he owned 100 shares of Lambda?
A) He could sell $500 worth of shares of Lambda each year.
B) He couldn't; he could not be sure of the price at which he could sell Lambda stock.
C) He could sell 5 shares of Lambda each year.
D) He could borrow against his holding of Lambda stock.

Question

Quizplus · Accepted Answer

Peter could sell $500 worth of Lambda shares each year to raise the same amount of spending money as he would receive from Kappa's dividends.

Kappa Corp and Lambda Corp Are Identical Except That Kappa