You purchased 3,000 shares of Space Apparition Co. four years ago at $40 per share. The company has announced a fixed-price tender offer stock repurchase at $70 per share. Capital gains are taxed at 20 percent. If you participate in the repurchase, how much will you receive?

Question

Quizplus · Accepted Answer

You will receive $210,000 from the repurchase (3,000 shares x $70). The capital gain is $90,000 (3,000 shares x ($70 - $40)), and the tax on this gain is $18,000 (20% of $90,000). Thus, the net amount received is $192,000 ($210,000 - $18,000).

You Purchased 3,000 Shares of Space Apparition Co