a) Ex-Dividend PriceCompany A has declared a dividend of $2.60 per share. Suppose capital gains are nottaxed but dividends are taxed at 15 percent. New IRS regulations require that taxes bewithheld at the time the dividend is paid. The stock closed at $36.80 per share today andthe stock goes ex dividend tomorrow. What will be the ex-dividend price?b) Market value and homemade dividendsAn investor own 100 shares of Firm X. The company will pay 0.50 per share this yearand final liquating dividend of $42 per share next year. The required return of this stockis 14%.Ignoring taxes, what is the current market value of one share of this stock?What will the investor's homemade dividend per share be next year if they do notwant any dividend this year? (hint: buy shares with the dividends this year)

Since you have asked multiple questions, we will solve the first question for you. If you want any…

a) Ex-Dividend Price Company A has declared a dividend of $2.60 per share. Suppose capital gains are not taxed but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The stock closed at $36.80 per share today and the stock goes ex dividend tomorrow. What will be the ex-dividend price?

a) Ex-Dividend Price Company A has declared a dividend of $2.60 per share. Suppose capital gains are not taxed but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The stock closed at $36.80 per share today and the stock goes ex dividend tomorrow. What will be the ex-dividend price?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Stock Expected Dividend Expected Capital Gain A $0 $10 B 5 5 C 10 0 Required: a. If each stock is priced at $165, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? b. Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity.
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