Use the following information to answer the question(s) below.
Suppose that all capital gains are taxed at a 20% rate, and that the dividend tax rate is 40%. Rearden Metal is currently trading for $40 per share, and is about to pay a $5 special dividend.
-Consider the following equation: P_cum - P_ex= Div × The term τ_g is:

Question

Use the following information to answer the question(s) below.
Suppose that all capital gains are taxed at a 20% rate, and that the dividend tax rate is 40%. Rearden Metal is currently trading for $40 per share, and is about to pay a $5 special dividend.
-Consider the following equation: P_cum - P_ex= Div ×

The term τ_g is:

Quizplus · Accepted Answer

τ_g represents the tax rate for capital gains. The equation is used to calculate the after-tax price of a share of stock, taking into account both capital gains and dividend taxes. The P_cum term represents the price per share before a dividend is paid, and the P_ex term represents the price per share after a dividend is paid.

Use the Following Information to Answer the Question(s) Below