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%
