Ginger, Inc., has declared a $5.50 per share dividend. Suppose capital gains are

Question

Ginger, Inc., has declared a $5.50 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 10 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Ginger stock sells for $94.05 per share, and the stock is about to go ex dividend.

What do you think the ex-dividend price will be? (Round to 2 decimal places)

Ginger, Inc., has declared a $5.50 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 10 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Ginger stock sells for $94.05 per share, and the stock is about to go ex dividend.

Explanation / Answer

Stock price - Dividend(1-t)

Therfore dtock price would be

94.05 - 5.5*0.9

94.05-4.95

=89.1

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