Assignment:
A European company issues common shares that pay taxable dividends and bearer shares that pay an identical dividend but offer an opportunity to evade taxes: Bearer shares come with a large supply of coupons that can be redeemed anonymously at banks for the current value of the dividend.
a. Suppose taxable dividends are taxed at the rate of 10%. What is the ratio between market prices of taxable and bearer shares? If a new issue is planned, should taxable or bearer shares be sold?
b. Suppose, in addition, that it costs 10% of proceeds to issue a taxable dividend, whereas it costs 20% of the proceeds to issue bearer stocks because of the expense of distribution and coupon printing. What type of share will the corporation prefer to issue?
c. Suppose now that individuals pay 10% taxes on dividends, and corporations pay no taxes but bear an administrative cost of 10% of the value of any bearer dividends. Can you determine the relative market prices for the two types of shares?
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.