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

The after-tax return is calculated as follows:Dividend income: $2 per share x 1000 shares = $2,000Tax on dividend income: $2,000 x 33% = $660After-tax dividend income: $2,000 - $660 = $1,340Capital gains: ($49.50 - $45) per share x 1000 shares = $4,500Tax on capital gains: $4,500 x 5% = $225After-tax capital gains: $4,500 - $225 = $4,275Total after-tax return: $1,340 + $4,275 = $5,615After-tax return percentage: $5,615 / $45,000 (initial investment) x 100% = 12.48%

Suppose Joe Palooka Bought 1000 Shares of Southern Overnight Overland