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Paxton Storage Systems is offering shareholders a choice between a $1.00 dividend or the opportunity ...

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Paxton Storage Systems is offering shareholders a choice between a $1.00 dividend or the opportunity ...

Paxton Storage Systems is offering shareholders a choice between a $1.00 dividend or the opportunity to sell the stock back to the company for $20 per share. Dr. Gilbert owns 1000 shares, purchased at $20 per share and wonders if there is any difference between taking the dividend for $1,000 or selling 50 shares at $20 per share. She would have to pay a 15% tax on either capital gains or dividends.
A) By selling back the 50 shares, whe will avoid taxes, but her remaining shares will be less valuable than if she chose the cash dividend.
B) She will have the same amount of cash under either alternative.
C) After taxes, she will have $200 more if she takes the cash dividend.
D) After taxes, she will have $200 more if she chooses to sell the 50 shares.

Textbook

Financial Management: Principles and Applications

Edition: 13^th

Authors: Titman, Keown, Martin

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