17.5 The price of the stock will equal the after-tax cash flows discounted by the required (after-tax) rate of return: P= 102.50+10(1-4) 1.10 98.64 Notice that the after-tax proceeds from the stock would increase by the amount that previously went to pay capital gains taxes, .20 x $4.72 = $.944. The present value of this tax saving is $.944/1.10 $.86. Therefore, the price increases to $97.78+ $.86 $98.64. The pretax rate of return falls to (102.50 98.64 + 10)/98.64.1405, or 14.05%, but the after-tax rate of return remains at 10%.