Manufacturing overhead includes all manufacturing costs such as direct labor and direct

The most likely tax environment in which Wilson Paper’s shareholders would prefer that Wilson repurchase its shares (share buybacks) instead of paying dividends is one in which:

Janet Wu is treasurer of Wilson Paper Company, a manufacturer of paper products for the office and school markets. Wilson Paper is selling one of its divisions for $70 million cash. Wu is considering whether to recommend a special dividend of $70 million or a repurchase of 2 million shares of Wilson common stock in the open market. She is reviewing some possible effects of the buyback with the company’s financial analyst. Wilson has a longterm record of gradually increasing earnings and dividends. Wilson’s board has also approved capital spending of $15 million to be entirely funded out of this year’s earnings. Book value of equity $750 million ($30 a share) Shares outstanding 25 million 12-month trading range $25–$35 Current share price $35 After-tax cost of borrowing 7% 60 Learning Outcomes, Summary Overview, and Problems part-i-07 13 January 2012; 10:21:1 Estimated full year earnings $25 million Last year’s dividends $9 million Target debt/equity (market value) 35/65 A. the tax rate on capital gains and dividends is the same. B. capital gains tax rates are higher than dividend income tax rates. C. capital gains tax rates are lower than dividend income tax rates.

An expected ____ in economic growth places ____ pressure on bond prices.

Fill in the blank(s) with the appropriate word(s).