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You purchased CSH stock for $40 and it is now selling for $50. The company has announced that it plans a $10 special dividend. A. Assuming 2010 tax rates of 15% on dividends and capital gains, if you sell the stock or wait and receive the dividend, will you have different after- tax income? B. Assuming the capital gains tax rate is 20% and the dividend tax rate is 40% if you sell the stock or wait and receive the dividend, will you have a different after-tax income? If the after-tax income is different, why?

You purchased CSH stock for $40 and it is now selling for $50. The company has announced that it plans a $10 special dividend. A. Assuming 2010 tax rates of 15% on dividends and capital gains, if you sell the stock or wait and receive the dividend, will you have different after- tax income? B. Assuming the capital gains tax rate is 20% and the dividend tax rate is 40% if you sell the stock or wait and receive the dividend, will you have a different after-tax income? If the after-tax income is different, why?

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation
Section: Chapter Questions
Problem 9MC
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You purchased CSH stock for $40 and it is now selling for $50. The company has announced that it plans a $10 special dividend. A. Assuming 2010 tax rates of 15% on dividends and capital gains, if you sell the stock or wait and receive the dividend, will you have different after- tax income? B. Assuming the capital gains tax rate is 20% and the dividend tax rate is 40% if you sell the stock or wait and receive the dividend, will you have a different after-tax income? If the after-tax income is different, why?
Transcribed Image Text:You purchased CSH stock for $40 and it is now selling for $50. The company has announced that it plans a $10 special dividend. A. Assuming 2010 tax rates of 15% on dividends and capital gains, if you sell the stock or wait and receive the dividend, will you have different after- tax income? B. Assuming the capital gains tax rate is 20% and the dividend tax rate is 40% if you sell the stock or wait and receive the dividend, will you have a different after-tax income? If the after-tax income is different, why?
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