Wk12 Q12 Dividends And Taxes As Discussed In The Text In The Absence Of Market I
Wk12 Q12 Dividends and Taxes As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price:(PO – PX) / D = (1–TP) / (1–TG)where PO is the price just before the stock goes ex, PX is the ex-dividend share price, D is the amount of the dividend per share, TP is the relevant marginal personal tax rate on dividends, and TG is the effective marginal tax rate on capital gains. Express your answers to questions (a) through (d) below as functions of D. (If the answer falls by “D”, input the letter “D”)a.