As discussed in the text, in the absence of market imperfections and tax effects, we would expectthe share price to decline by the amount of the dividend payment when the stock goes exdividend. Once we consider the role of taxes, however, this is not necessarily true. One modelhas been proposed that incorporates tax effects into determining the ex-dividend price:(Po Px)/D = (1Tp)/(1-TG)where PO is the price just before the stock goes ex, Px is the ex-dividend share price, D is theamount of the dividend per share, Tp is the relevant marginal personal tax rate on dividends, andTG is the effective marginal tax rate on capital gains. d. Suppose the only owners of stock are corporations. Recall that corporations get at least a50 percent exemption from taxation on the dividend income they receive, but they do notget such an exemption on capital gains. If the corporation's income and capital gains taxrates are both 21 percent, how much will the share price fall?Note: Do not round intermediate calculations and round your answer to 4 decimalplaces, e.g., 32.1616.Decrease in share priceD

When the stock goes ex-dividend, its share price reduces by the dividend amount. So, share price…

of the dividend payment wi ne snare price to ecline by lividend. Once we consider the role of taxes, however, this is not ne as been proposed that incorporates tax effects into determining the PO Px)/D = (1 - Tp)/(1-TG) where Po is the price just before the stock goes ex, Px is the ex-divid mount of the dividend per share, Tp is the relevant marginal person G is the effective marginal tax rate on capital gains.

of the dividend payment wi ne snare price to ecline by lividend. Once we consider the role of taxes, however, this is not ne as been proposed that incorporates tax effects into determining the PO Px)/D = (1 - Tp)/(1-TG) where Po is the price just before the stock goes ex, Px is the ex-divid mount of the dividend per share, Tp is the relevant marginal person G is the effective marginal tax rate on capital gains.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Which of the following would not be used as a summary performance measure when using market multiples to determine value? Stock price Net operating assets Net operating profit after tax Book value
Which of the following best describes what investors in shares seek compensation for? The risk-free rate of return plus time value of money OA. O B. The loss of interest on a building society account plus the dividend yield on shares Inflation and risk only OC Sacrifice of immediate use of cash otherwise available for consumption, inflation and risk OD.
True or False: When stock is issued for more than its par value, the excess is considered to be an expense and should be reported on the income statement. Select one: O True False
Dividend policy may be affected by firm level as well as macroeconomic level factors. Select FIVE variables (at least 2 firm-level factors/variables and at least 2 macroeconomic factors/variables) from the list shown below. Explain and discuss the predicted impact of selected factors on dividend policy using relevant theories. i.e. what theories help to predict the positive or negative impact on the dividend payout and why. FIRM-LEVEL FACTOR/VARIABLE Asset growth rate Positive NPV investment opportunities Capital intensity of the production process Free cash flow generated Number of individual shareholders Relative tightness of ownership coalition Size of largest block holder MACROECONOMIC FACTOR/VARIABLE Transaction costs of security issuance Personal tax rates on dividend income Personal tax rates on capital gain Importance of institutional investors Corporate governance power of institutional investors Capital market, relative to intermediated (bank) financing
Discuss the Modigliani and Miller theory. What did Modigliani and Miller assume about taxes and brokerage costs when they developed their dividend irrelevance theory? Discuss the bird - in - hand theory of dividends. How did the bird - in - hand theory get its name? What have been the results of the empirical tests of the dividend theories?
What is reflected in the additional paid-in capital account?Required to answer. Single choice. a. Whichever is higher of (1) the difference between the market price and the par value when the stock was issued and (2) the difference between the market price and the par value when the stock was reacquired b. Whichever is lower of (1) the difference between the market price and the par value when the stock was issued and (2) the difference between the market price and the par value when the stock was reacquired c. The difference between the market price and the par value when the stock was reacquired d. None of the above e. The difference between the market price and the par value when the stock was issued.
Is the market price per share Net income Less Preferred Dividends
help
As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price: (P0 – PX)/D = (1 – TP)/(1 – TG) Here P0 is the price just before the stock goes ex, PX is the ex-dividend share price, D is the amount of the dividend per share, TP is the relevant marginal personal tax rate on dividends, and TG is the effective marginal tax rate on capital gains. a. If TP = TG = 0, how much will the share price fall when the stock goes ex? multiple choice PX P0 D b. If TP = 16 percent and TG = 0, how much will the share price fall? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)…
3. Which of the below theories argues that dividend payment decisions are driven by investor demand? Modigliani and Miller (1961) Shefrin and Statman (1984) Jensen (1986) Lintner (1956) Baker and Wurgler (2004)
while the theory dcf based empirical test of dividend theory have generated inclusive result. CAPM based test demonstrated that low payout ratio stock have lowered required return because of tax consideration. True or false?
If an investor sells an ordinary share at a price above that which he or she originally paid, the investor is said to have earnedSelect one: a.a capital expenditure. b.a capital gain. c.an originating point. d.a dividend. explain well all point of question.

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