Capital gains formula

For an investor to be indifferent between capital gains and dividends, the drop in stock price when the stock goes from dividend to ex-dividend is given by drop = Dividend*(1-Tax on dividends)/(1-Tax on capital gains)… Does this mean that a drop in share price is actually taxed??

Not until the position is actually sold (realized).

When a dividend pays out you are taxed on the dividend, not the capital loss. The share price drops because the value of the firm is lower due to the outflow from the dividend.

The equation highlights the effect taxation has on investor preference between receiving dividends or capital appreciation.

For example, if capital gains are not taxed then the drop in price will be lower as a cause of investor preference of capital gains over dividends.

Capital gains are taxed right, not losses… When a dividend is paid, the stock price would go down the price of the divdend per share (ex-dividend)… so, would this not act as a tax shield??