An investor pays $63.00 per share for stock in a given REIT.The REIT declares a dividend of $4.00 per share and has an EPS of $2.37.Considering the recovery of capital (ROC),what is the new cost basis of the stock acquired by the investor?

Question

Quizplus · Accepted Answer

The recovery of capital (ROC) is the portion of the dividend payment that is considered a return of the investor's original investment, and is not subject to taxes. The ROC is calculated by subtracting the REIT's EPS from its dividend payment: $4.00 - $2.37 = $1.63.

To find the new cost basis, we need to subtract the ROC from the original purchase price: $63.00 - $1.63 = $61.37. Therefore, choice B is correct.

An Investor Pays $63