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Basic Question 4 of 6
Assume the marginal ordinary income tax for an investor is 30% but for capital gains it is 15%. What would the investor prefer: $100 in dividends or $80 in capital gains?
B. $80 in capital gains.
C. The investor would be indifferent.
A. $100 in dividends.
B. $80 in capital gains.
C. The investor would be indifferent.
User Contributed Comments 3
| User | Comment |
|---|---|
| REITboy | Isn't $100*(1-30%)=$70, while $80*(1-15%)=$68? |
| joywind | the same thing... two way to look at it |
| ericczhang | I don't think it's the same thing, actually... $70 would be the gross proceeds of the dividends, while $82.35 is the economic oppurtunity cost. Oppurtunity cost is $82.35 because you lose 30% in income taxes, but you avoid 15% in capital gains tax from company reinvestment of dividend. Although this implicity assumes you're going to sell the equity this year. |
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Learning Outcome Statements
describe types of information (signals) that dividend initiations, increases, decreases, and omissions may convey;
explain how agency costs may affect a company's payout policy;
CFA® 2025 Level II Curriculum, Volume 3, Module 16.