Question

Ginger, Inc., has declared a $6.30 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 $94.45 per share, and the stock is about to go ex dividend. What do you think the ex-dividend price will be

Answer 1

Answer: $89.41

Step-by-step explanation:

In the stock market, the price is a stock on its ex dividend date is usually marked down by it's amount of dividend. Eg, if a stick trades at $5 and declares a $1 dividend, the stock will be sold at $4.

In the above scenario we'd have to account for tax in the formula so this is what it will look like,

Ex Dividend Price = Pre dividend Price - Cash dividend Payment

= $94.45 - $6.3 x (1 - 0.2)

= $94.45 - $5.04

= $ 89.41

The Ex dividend Price is $89.41

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