Problem 14-3 Dividends and Taxes [LO 2] Palmer, Inc., has declared a $6.80 per s

Question

Problem 14-3 Dividends and Taxes [LO 2]

Palmer, Inc., has declared a $6.80 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Palmer sells for $119 per share, and the stock is about to go ex-dividend.

What do you think the ex-dividend price will be? (Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)

Palmer, Inc., has declared a $6.80 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Palmer sells for $119 per share, and the stock is about to go ex-dividend.

Explanation / Answer

Hi,

Please find the answer as follows:

Ex dividend Price = 119 - 6.8*(1-.15) = 113.22

Thanks.

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