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My question here is after finding the increased dividend why do u divide it by 0.94?
I mistyped – it is 26% – 20%
Those are the two tax rates given in the question!!
whats the reason behind grossing up we can just do 10.422/(15m-0.9)..
Also if are grossing up.. why arent we doing full gross up that is 10.422/ 0.74 ( accpunting for 26% of the tax ?The question makes it clear that full credit is given for tax already paid.
Thy have already paid tax at 20% and therefore just have to pay the extra 6%.
Therefore for every $100 received in remittances they will only end up with a net $94. Or, putting it the other way round, for every increase in dividend capacity of $94 they need to have received $100 in remittances.
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