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Suppose the corporate tax rate is 35 and there is no growth

i) Suppose earnings before tax per share or EBT/share is $1 and the dividend payout rate is 100%. The return on equity or Re is 10%. Suppose the corporate tax rate is 35% and there is no growth. The number of shares also remains constant, find the fundamental value of each share Po.

ii) Now suppose the corporate tax rate cut to 21%.

Confused because I thought the eqn should be Po = D/r , and with this, tax has no effect. Not sure what to do.

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Finance Basics: Suppose the corporate tax rate is 35 and there is no growth

Reference No:- TGS02641886

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