Suppose capital gains are not taxed but dividends are taxed


Air Taxi, Inc. has declared a $6.50 per-share dividend. Suppose capital gains are not taxed, but dividends are taxed at 16% and new regulations require that dividends are taxed when paid. Air Taxi stock sells for $116 per share.

What will the ex-dividend price be?

Dividend per share        $6.50

Tax rate                        16%

Price                            $116.00

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Financial Management: Suppose capital gains are not taxed but dividends are taxed
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