A year ago you purchased the abc stock for 60 the stock is, Ask an Expert

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A year ago you purchased the ABC stock for 60. The stock is now selling for 80. The firm has just announced that it will distribute a special dividend of 10. You are considering whether or not you should sell the stock now before it goes ex-dividend (trading strategy I), or alternatively, wait to capture the dividend and then sell the stock immediately afterwards (trading strategy II). These two strategies were reviewed during our last class meeting.

Problem

If your capital gains tax rate equals your dividend tax rate, what ex-dividend price per share makes you indifferent between the two trading strategies? State you answer rounded off to two decimal points.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92697645

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