NARRBEGIN: SOOIE
Southern Overnight Overland Interstate Express (SOOIE)
Suppose Joe Palooka bought 1000 shares of Southern Overnight Overland Interstate Express (SOOIE)one year ago for $45 per share.Mr.Palooka received a $2 per share dividend,and SOOIE shares have increased to $49.50.Joe needs to adjust his portfolio,so he sells his SOOIE shares.
-Refer to SOOIE.What is his after tax return if he faces a 33% tax rate on dividend income and a 5% tax rate on capital gains?

Question

Quizplus · Accepted Answer

Joe's after-tax return is calculated by considering both the dividend income and the capital gains, minus the taxes on each. The dividend income is $2,000 (1000 shares * $2), taxed at 33%, leaving $1,340 after tax. The capital gain is $4,500 (1000 shares * ($49.50 - $45)), taxed at 5%, leaving $4,275 after tax. The total after-tax income is $5,615 ($1,340 + $4,275). The initial investment was $45,000 (1000 shares * $45). The after-tax return is ($5,615 / $45,000) * 100% = 12.48%.

NARRBEGIN: SOOIE Southern Overnight Overland Interstate Express (SOOIE)