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Assume capital markets are perfect. Kay Industries currently has $100 million invested in? short-term Treasury securities paying 7%, and it pays out the interest payments on these securities each year as a dividend. The board is considering selling the Treasury securities and paying out the proceeds as a? one-time dividend payment. Assume that Kay must pay a corporate tax rate of 30%?, and investors pay no taxes.

a. If the board went ahead with this? plan, what would happen to the value of Kay Industries upon the announcement of a change in? policy?

b. What would happen to the value of Kay Industries on the? ex-dividend date of the? one-time dividend?

c. Given these price? reactions, will this decision benefit? investors?

a. If the board went ahead with this? plan, what would happen to the value of Kay Industries upon the announcement of a change in? policy? ?(Select the best choice? below.)

A. The value of Kay would rise by $ 100 x 30 % =$30 million.

B. The value of Kay would rise by $100 million.

C. The value of Kay would fall by $100 million.

D. The value of Kay would remain the same.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92399965

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