Question

Ginger, Inc., has declared a $6.40 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 10 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The company's stock sells for $94.50 per share, and the stock is about to go ex dividend. What do you think the ex-dividend price will be?

Answer 1

$88.74

Step-by-step explanation:

Ginger incorporation has declared a dividend of $6.40 per share

The dividends are taxed at 10%

= 10/100

= 0.1

The company's stock is sold at $94.50 per share

Therefore, the ex-dividend price can be calculated as follows

Ex-dividend price= Current selling price-dividend(1- tax rate)

= $94.50-$6.40(1-0.10)

= $94.50-$6.40(0.9)

= $94.50-$5.76

= $88.74

Hence the ex-dividend price is $88.74