Lee Ann, Inc., has declared a $6.00 per share dividend. Suppose Capital gains are not taxed, but dividends are taxed at 15 percent. Lee Ann sells for $80 per share, and the stock is about to go exdividend. What do you think the ex-dividend price will be?
Ex-dividend price
If the stock is about to go ex-dividend, then the price of the stock will be fall to the extent of the after-tax dividend per share
Therefore, the Ex-dividend price = Current Selling price of the stock – After-tax dividend per share
= Current Selling price of the stock – Dividend per share(1 – Tax Rate)
= $80.00 - $6.00(1 – 0.15)
= $80.00 – [$6.00 x 0.85]
= $80.00 – $5.10
= $74.90 per share
“Therefore, the Ex-dividend price will be fall to $74.90 per share from the existing share price of $80.00 per share”
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