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3. Lee Ann Inc. has declared a $5.40 per share dividend. Suppose capital gains are not...

3. Lee Ann Inc. has declared a $5.40 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. Lee Ann sells for $75 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?

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Answer #1
Answer:
After tax Dividend
               =    Dividend Price x (1 (-) Tax rate )
               =    $ 5.40 x ( 1- 15% )
               =     $ 5.40 x 0.85		 $ 4.59
Ex-dividend Price
              = Share issue Price (-) After tax Dividend
              =    $ 75 (-) $ 4.59		 $ 70.41
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