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Exhibit 13-1
You currently hold 100 shares of Bavarian Sausage,Inc.stock which you purchased three months ago at $25.50 and which is currently trading at $28.The stock will pay a $3.75 dividend in a few days and the ex-dividend day is tomorrow.Your personal tax rate on dividend income is 25% and the capital gains tax is 15%.
-Refer to Exhibit 14-1.If you decide to sell the stock after you received the dividend and the dividend is fully reflected in the ex-dividend price,what is the total after tax dollar return on the investment?

Question

Quizplus · Accepted Answer

ex-dividend: 24.25
capital loss: 24.25-25.50 = -1.25
tax credit: 1.25(.15)100 = 18.75
after tax dividend = 3.75(1-.25)(100)= 281.25
proceeds = 2425 + 281.25 + 18.75 = 2725

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