M1 Suppose the capital-gain tax rate is 22%, and thedividend tax rate is 35%. The share price of KittyLimited is currently at $10. Assume you have 100shares of Kitty Limited.Case 1: Kitty Limited pay $2 dividend per share inone year, and the ex-dividend price would be $10.Case 2: Kitty Limited does not pay any dividend,and the share price is $x in one year.a) Calculate the effective dividend tax rate.b) Suppose you prefer Case 2 to Case 1, what is theminimum value of $x?

The dividends are to paid by the net income of the company and but there are taxes to be paid on the…

Suppose the capital-gain tax rate is 22%, and the dividend tax rate is 35%. The share price of Kitty Limited is currently at $10. Assume you have 100 shares of Kitty Limited. Case 1: Kitty Limited pay $2 dividend per share in

Suppose the capital-gain tax rate is 22%, and the dividend tax rate is 35%. The share price of Kitty Limited is currently at $10. Assume you have 100 shares of Kitty Limited. Case 1: Kitty Limited pay $2 dividend per share in

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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Question

Suppose the capital-gain tax rate is 22%, and the
dividend tax rate is 35%. The share price of Kitty
Limited is currently at $10. Assume you have 100
shares of Kitty Limited.
Case 1: Kitty Limited pay $2 dividend per share in
one year, and the ex-dividend price would be $10.
Case 2: Kitty Limited does not pay any dividend,
and the share price is $x in one year.
a) Calculate the effective dividend tax rate.
b) Suppose you prefer Case 2 to Case 1, what is the
minimum value of $x?

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