Miller, Inc., has declared a $5.90 per share dividend. Suppose capital gains are

Question

Miller, Inc., has declared a $5.90 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Miller sells for $110 per share, and the stock is about to go ex-dividend.

What do you think the ex-dividend price will be? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Miller, Inc., has declared a $5.90 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 20 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Miller sells for $110 per share, and the stock is about to go ex-dividend.

Explanation / Answer

Ex-dividend = Dividend per share × (1 – Tax rate)

                    = $5.90 × (1 – 0.20)

                    = $4.72

Ex-dividend price = Per share price – Ex-dividend

                             = $110 - $4.72

                             = $105.28

Answer: The ex-dividend price is $105.28.

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