question archive Datamatic Corproation operates in the IT industry

Datamatic Corproation operates in the IT industry

Subject:FinancePrice:2.86 Bought3

Datamatic Corproation operates in the IT industry. An investor buys a stock of the company today for $30, receives a dividend of $3 at the end of the year and then sells the stock for $36. If the dividend is taxed at 40% and the capital gain at 20%, what is his return after tax? Dividend imputation does not apply.

 

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*His return after tax equals $6.60 [an equivalent of 22% returns from stock investment]

Step-by-step explanation

*After-tax return from dividends=dividend amount × (1-dividend tax)

=3×(1-0.4)

=$1.80

 

*Capital gain=selling price of stock-buying price for the stock

=36-30=$6

*Capital gain returns after tax=capital gains×(1-capital gains tax)

=6×(1-0.2)

=$4.80

*Total after-tax returns=1.80+4.80

=$6.60

As a percentage=6.60/30×100=22%

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