Calculation of Share Price on Ex Div Date

CFA Level II Corporate Finance
#1

The curriculum says:
When the tax rate for dividend is not the same as the tax rate on capital gains, then the amount by which the share price will drop on ex-dividend day is -

MPS (d) - MPS (x) = Div Amt * { [1 - t(D)] / [1 - t (CG)] }

MPS (d) = market price of share during div
MPS (x) = market price of share ex-div
t(D) = tax rate on dividend
t (CG) = tax rate on capital gains

The curriculum goes on to say that [1 - t(D)] / [1 - t (CG)] is the indifference measure for the investor. For example if it was 0.5, then it means that the investor is indifferent towards $1 in dividends & $0.5 in capital gains.

I am unable to understand this whole concept. Could someone help me out?

#2

The investor wants the same amount after taxes. Set the after-tax gain (dividend) equal to the after-tax loss (price drop), then solve for the price drop.

It’s simple algebra.