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Suppose that all capital gains are taxed at a 25% rate, and that the dividend tax rate is 45%. Orchid Metal is currently trading for
Suppose that all capital gains are taxed at a 25% rate, and that the dividend tax rate is 45%. Orchid Metal is currently trading for $45 per share, and is about to pay a $9 special dividend.
- What is the effective dividend tax rate for an investor in Orchid Metal?
- Absent any other trading frictions or news, calculate the Orchid's share price just after the dividend is paid. Show all your working.
- Suppose that Orchid Metal made a surprise announcement that it would do a share repurchase rather than pay a special dividend, what is the net tax savings per share for an investor that would result from this decision?
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