As discussed in the text, in the absence of market imperfectionsand tax effects, we would expect the share price to decline by theamount of the dividend payment when the stock goes ex dividend.Once we consider the role of taxes, however, this is notnecessarily true. One model has been proposed that incorporates taxeffects into determining the ex-dividend price:

(PO – PX) / D= (1 – TP) / (1 –TG)

Here PO is the price just before the stockgoes ex, PX is the ex-dividend share price,D is the amount of the dividend per share,TP is the relevant marginal personal tax rateon dividends, and TG is the effective marginaltax rate on capital gains.

Required:

(a)	If TP = TG = 0, howmuch will the share price fall when the stock goes ex?

Share price decline

D

(b)	If TP = 15 percent andTG = 0, how much will the share price fall?(Do not round intermediate calculations. Round your answerto 2 decimal places (e.g., 32.16).)

Share price decline

D

(c)	If TP = 15 percent and ifTG = 30 percent, how much will the share pricefall? (Do not round intermediate calculations. Round youranswer to 4 decimal places (e.g., 32.1616).)

Share price decline

D

(d)

Suppose the only owners of stock are corporations. Recall thatcorporations get at least a 70 percent exemption from taxation onthe dividend income they receive, but they do not get such anexemption on capital gains. If the corporation's income and capitalgains tax rates are both 35 percent, what does this model predictthe change in the ex-dividend share price will be? (Do notround intermediate calculations. Round your answer to 4 decimalplaces (e.g., 32.161).)

Share price decline

D