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Party Land Corporation is an all equity firm with 100 million shares outstanding. The market
value of its assets is $6 billion of which $2 billion is cash and is currently permanently invested
in short-term Treasury securities paying 2% and pays out the interest payments on these
securities as a dividend. The board is considering a surprise announcement about selling the
Treasury securities and paying out the proceeds as a one-time dividend payment. If both
corporate tax rate and dividend tax rate are 20%, by how much does the stock price (per share)
change in response to this announcement? [Hint: Calculate the total taxes for each of the two
scenarios.]

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