change in stock price ex-dividend 2011, equation, change, someone, tonight

BC_MBA_student

dividend * (1 - dividend tax rate)
___________________________
(1 - investors marginal tax bracket)



Never seen this equation before tonight. Makes no sense to me. Can someone explain?



Edited 1 time(s). Last edit at Thursday, May 26, 2011 at 10:57PM by mp3bu.

tobeornottobe

Dividends should reduce the price.
Being Paid in Dividends, you pay less in marginat tax (or Cap Gains Tax)
So basically what you are doing is adjusting for the change in price according to the taxes.

Correct me if im wrong. (this is they way i have simplified for myself)

liquidity

Actually it is:

Dividend*(1- Td)/(1-Tcg)

where,

Td= dividend tax rate

Tcg= capital gains tax rate


It lies in the corporate finance volume in the dividends vs. repurchases topic.

With this type you can find:

1) the ex-dividend price (depending on the relationship between td and tcg)

2) whether a unit of dividend is worth more than a unit of capital gain.



Edited 1 time(s). Last edit at Friday, May 27, 2011 at 03:18AM by perimel.