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The Barryman Drilling Company is planning anon-market buyback of $1million worth

The Barryman Drilling Company is planning anon-market buyback of $1million worth of the company’s 500000 shares, which are currently trading at a price of $10.Stan Barryman is the founder of the company andstillholds10000company shares,which he originallypurchasedfor$8pershare(morethan12monthsago).

 

a) If Stan decides to sell 2000 ofhissharesfor$10ashare,whatwillbehisafter-taxproceedsifhispersonalmarginaltaxrateis47%?

 

b) TheBarrymanDrillingCompanyisreconsideringitsplantobuyback$1millionofitsordinarysharesandinsteadplanstopaya$1millionfullyfrankedcashdividend, whichamountsto$2perordinaryshare.Ifthecompany taxrateis30%andStanBarryman’s personalmarginal taxrateis47%,whattaxliability doesthiscreateforhim?WhatwillbeStan’safter-taxproceedsfromthedividend distribution?

Jan 31 2020 View more View Less

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