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Air Taxi, Inc. has declared a $9.50 per-share dividend. Suppose capital gains are not taxed, but...

Air Taxi, Inc. has declared a $9.50 per-share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15% and new regulations require that dividends are taxed when paid. Air Taxi stock sells for $115 per share. What will the ex-dividend price be? Dividend per share $9.50 Tax rate 15% Price $115.00

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Answer #1

Solution:-

After Tax Dividend = DPS * (1-Tax)

After Tax Dividend = $9.50 * (1-0.15)

After Tax Dividend = $8.075

To Calculate Ex-Dividend Price-

Ex-Dividend Price = Price - After Tax Dividend

Ex-Dividend Price = $115 - $8.075

Ex-Dividend Price = $106.925

If you have any query related to question then feel free to ask me in a comment.Thanks.

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