8-12 Stan Pearl owns 300 shares of Royal Optical Company stock, which he bought for $16 per share. He is in a 35 percent tax bracket. It is the first week in December, and he has already received the full cash dividend for the year of $1. 20 per share. For his tax bracket, dividends are now taxed at 15%. The stock is currently selling for $30 1/8. He has decided to sell the stock and after paying broker commissions, his net proceeds will be $30 per share. His tax rate on capital gains is also 15 percent How much in total taxes will Stan Pearl pay this year for his investment in Royal Optical Company? Consider dividend income as well as capital gains Solution: Royal optical Company Ta xes on dividend Dividend income Shares x dividends per share 300x$120 $36000 axes Dividend income x marginal tax rate $360x15% $5400 Taxes on Capital gains $30 Purchase price 16 Capital gains per share $14 Ni umber of shares 300 Total capital gains $4,200 Capital gains tax rate 15% Capital gains tax $630 Total taxes Taxes on dividend Taxes on capital gains 630 $684 CopyrightC 2005 by The McGran-Hill Companies, Inc. S-638Copyright © 2005 by The McGraw-Hill Companies, Inc. S-638 18-12. Stan Pearl owns 300 shares of Royal Optical Company stock, which he bought for $16 per share. He is in a 35 percent tax bracket. It is the first week in December, and he has already received the full cash dividend for the year of $1.20 per share. For his tax bracket, dividends are now taxed at 15%. The stock is currently selling for $30 1/8. He has decided to sell the stock and after paying broker commissions, his net proceeds will be $30 per share. His tax rate on capital gains is also 15 percent. How much in total taxes will Stan Pearl pay this year for his investment in Royal Optical Company? Consider dividend income as well as capital gains. Solution: Royal Optical Company a. Taxes on dividends Dividend income = Shares x dividends per share = 300 x $1.20 = $360.00 Taxes = Dividend income x marginal tax rate = $360 x 15% = $54.00 Taxes on Capital gains Sales price $ 30 Purchase price 16 Capital gains per share $ 14 x Number of shares 300 Total capital gains $4,200 Capital gains tax rate 15% Capital gains tax $ 630 Total taxes Taxes on dividends $ 54 Taxes on capital gains 630 $684