The absence of market imperfections and tax effects

Assignment Help Financial Management

Reference no: EM131902927

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: (P0 – PX) / D = (1 – TP) / (1 – TG) Here P0 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. a. If TP = TG = 0, how much will the share price fall when the stock goes ex?

Reference no: EM131902927

Questions Cloud

How many ml of each solution do you need for final solution : You have on hand a 50% syrup solution, and a 1:200 soda solution. How many mL of each solution do you need for final solution?

Oral contraceptive compliantly since its prescription : Please include detailed pharmacological mechanisms of how this occurred, and your subsequent steps in her management.

How did the students respond to the questions : Describe some of formative assessment techniques or strategies that your mentor used during the lesson.

What is going on in firm and how is it affecting performance : How is the firm doing? Focus on top and bottom line growth. What is going on in the firm and how is it affecting performance of firm?

The absence of market imperfections and tax effects : As discussed in the text, in the absence of market imperfections and tax effects, how much will the share price fall when the stock goes ex?

Describe how you would teach the vocabulary words : Describe how you would teach the vocabulary words to your students. Include in this section a brief description of the kinds of structures.

Company weighted average cost of capital-cost of equity : If Wild Widgets, Inc., were an all-equity company, it would have a beta of 1.85. What is the company’s weighted average cost of capital?

What are the considerations for older adults : What are the considerations for older adults when using drugs that affect GI secretions?

Describes each of the six main instructional strategies : Create a graphic organizer or table that briefly describes each of the six main instructional strategies listed below.

User Account

All Pages