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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
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
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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?
Transcribed Image Text: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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