Question

Estes Park, Inc., has declared a dividend of $6.80 per share. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The company's stock sells for $119 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?

Answer 1

$113.22

Step-by-step explanation:

First, we need to find the after-tax dividend;

After-tax Dividend = Dividend x (1 - t) = $6.80 x (1 - 0.15) = $5.78

Ex-Dividend Price = Stock Price - After-tax Dividend

= $119 - $5.78 = $113.22