Question

Ash, Inc., has declared a dividend of $6.60 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 $94.60 per share and is about to go ex dividend. What do you think the ex-dividend price will be?

Answer 1

$89.32

Step-by-step explanation:

For computing the ex-dividend price, first we have to determine the after-tax dividend which is shown below:

After-tax dividend would be

= Dividend per share × (1 - tax rate)

= $6.60 × (1 - 0.20)

= $5.28

Now the ex-dividend price would be

= Sale price of stock - after-tax dividend

= $94.60 - $5.28

= $89.32

Hence, we considered all the information which is mentioned in the question.