Gatto, Incorporated, has declared a $5.40 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The company's stock sells for $94.00 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Ex-dividend price

Gatto, Incorporated, has declared a $5.40 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The company's stock sells for $94.00 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Ex-dividend price

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter15: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 5Q: Indicate whether the following statements are true or false. If the statement is false, explain why....

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Estes Park, Inc., has declared a dividend of $5.90 per share. Suppose capital gains are not taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The company's stock sells for $110 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?
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? b) Market value and homemade dividends An investor own 100 shares of Firm X. The company will pay 0.50 per share this year and final liquating dividend of $42 per share next year. The required return of this stock is 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 not want any dividend this year? (hint: buy shares with the dividends this year)
The current stock price of a company is $100 a share. This company announces a dividend of $5 a share. On ex-dividend day the stock price drops $4 to $96 a share. If the tax rate on dividends, D, is 30%, what is the implied tax rate on capital gains, G? You are a tax-exempt institution, and you plan to sell 100 shares (that you already own) of this stock; would you sell them cum- or ex-dividend?
Que Corporation pays a regular dividend of $1 per share. Typically, the stock price drops by $0.80 per share when the stock goes ex-dividend. Suppose the capital gains tax rate is 20%, but investors pay different tax rates on dividends. Absent transactions costs, what is the highest dividend tax rate of an investor who could gain from trading to capture the dividend?
LMN Corporation, a real estate company, is planning to pay a dividend of $0.80 per share. Most of the investors in LMN are other corporations that pay 40.00 percent of their ordinary income and 27.00 percent of their capital gains as taxes. However, they can exempt 71.00 percent of the dividends they receive from taxes. If the shares are selling at $23.00 per share, what would be the ex-dividend stock price? $21.03 $22.03 $21.34 $22.80 $21.18
An investor currently owns 6104 shares of LIWK Inc. LIWK Inc. has a high-dividend-payout policy and this year will pay $5 cash dividend on its shares selling currently at $69. Assume that an Investor: wants a low-dividend-payout policy. is now taxed at 15% on capital gains and 15% on dividend distributions. originally paid a price for these shares equal to their current price. If an investor need only $500, how many shares should be acquired by the Investor on ex-date in order to undo the dividend policy of LIWK Inc.?
c. If Tp = 15 percent and TG = 30 percent, how much will the share price fall? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Share price d. Suppose the only owners of stock are corporations. Recall that Corporations get at least a 50 percent exemption from taxation on the dividend income they receive, but they do not get such an exemption on capital gains. If the corporation's income and capital gains tax rates are both 21 percent, what does this model predict the ex- dividend share price will be? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Share price D N. Elton and M. Gruber, "Marginal Stockholder Tax Rates and the Clientele Effect," Review of Economics and Statistics 52 (February 1970).
You purchased CSH stock for $42 and it is now selling for $53. The company has announced that it plans a $11 special dividend. a. Assuming 2010 tax rates of 15% on dividends and capital gains, if you sell the stock or wait and receive the dividend, will you have different after-tax income? b. Assuming the capital gains tax rate is 21% and the dividend tax rate is 42%, if you sell the stock or wait and receive the dividend, will you have different after-tax income? If the after-tax income is different, why? a. Assuming 2010 tax rates of 15% on dividends and capital gains, if you sell the stock or wait and receive the dividend, will you have different after-tax income? (Select from the drop-down menu.) Assuming 2010 tax rates are 15% on capital gain and 15% on dividends, if you sell the stock or wait and receive the dividend, you have different after-tax income. b. Assuming the capital gains tax rate is 21% and the dividend tax rate is 42%, if you sell the stock or wait and receive the…
d. Suppose the only owners of stock are corporations. Recall that corporations get at least a 50 percent exemption from taxation on the dividend income they receive, but they do not get such an exemption on capital gains. If the corporation's income and capital gains tax rates are both 33 percent, what does this model predict the ex- dividend share price will be? (Do not round intermediate calculations and round. your answer to 4 decimal places, e.g., 32.1616.)
Find the after-tax return to a corporation that buys a share of preferred stock at $47, sells it at year-end at $47, and receives a $3 year-end dividend. The firm is in the 30% tax bracket. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
An investor has a 38 percent ordinary income tax rate and a 20 percent long-term capital gains tax rate. The investor holds stock in a firm that could pay its usual $1 per share dividend or reinvest the cash in the firm. The stock price is currently $30 per share. If the firm does not pay the dividend, the share price will rise. If it pays the dividend, the share price will stay the same. By how much must the share price rise if the dividend is not paid in order to make the investor indifferent between receiving the dividend or not? a. $1.00 b. $0.59 c. $0.78 d. $0.97 e. $0.50
Erna Corporation is evaluating an extra dividend versus a share repurchase. In either case, $19,000 would be spent. Current earnings are $1.60 per share and the stock currently sells for $50 per share. There are 2,500 shares outstanding. Ignore taxes and other imperfections. a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What will be the effect on the company’s EPS and PE ratio under the two different scenarios? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Give typing answer with explanation and conclusion