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 15% tax rate on dividends and capital gains?

Question

Quizplus · Accepted Answer

Joe's total return includes both the dividend income and the capital gain. The dividend income is $2 per share, and the capital gain is $49.50 - $45 = $4.50 per share. The total pre-tax return per share is $2 + $4.50 = $6.50. The after-tax dividend is $2 * (1 - 0.15) = $1.70, and the after-tax capital gain is $4.50 * (1 - 0.15) = $3.825. The total after-tax return per share is $1.70 + $3.825 = $5.525. The after-tax return percentage is ($5.525 / $45) * 100% = 12.28%.

Suppose Joe Palooka Bought 1000 Shares of Southern Overnight Overland