How share buy-backs differ from dividends: You purchased 2,500 shares of DotCom.com several years ago for $40 per share. The company is offering a buy-back for $54 per share. What is the amount of after-tax proceeds you would receive from taking part in the buy-back if capital gains are taxed at 15 per cent?
A) $120,000
B) $121,250
C) $129,750
D) $135,000

Question

Quizplus · Accepted Answer

The capital gain per share is $54 - $40 = $14. For 2,500 shares, the total gain is $35,000. After a 15% tax, the tax amount is $5,250. The after-tax proceeds are $135,000 (total buy-back amount) - $5,250 (tax) = $129,750.

How Share Buy-Backs Differ from Dividends: You Purchased 2,500 Shares