(Calculating the ex-dividend stock price) Kingwood Corporation has a stock price of $115.62 per share and is contemplating the payment of a large, one-time cash dividend of $40.39 per share. The underlying motivation for the large payout comes from management's belief that the firm has more cash than it can profitably reinvest and that keeping the cash will adversely affect the incentives of the workforce to strive to create shareholder value. Consequently, the firm's management decided to pay the large cash dividend. What do you think the ex-dividend-date price of the company's shares will be? If the firm's management is right about the stimulating effect of disgorging cash, do you think that the drop in stock price after the ex-dividend date will be smaller than otherwise expected? a. The ex-dividend date price of the company's shares will be $ : (Round to the nearest cent.) b. If the firm's management is right about the stimulating effect of disgorging cash, do you think that the drop in stock price after the ex-dividend date will be smaller than otherwise expected? (Select all the choices that apply.) A. Since this is only a one-time dividend payment, the stock price should not change at all. O B. Given the underlying motivation for the large payout, it is possible that the stock price would not fall by $40.39. OC. This firm has just admitted that its growth days are over, thus the price will probably fall by more than $40.39. D. The large one-time dividend will attract attention and the stock price will most probably rise a few dollars.
(Calculating the ex-dividend stock price) Kingwood Corporation has a stock price of $115.62 per share and is contemplating the payment of a large, one-time cash dividend of $40.39 per share. The underlying motivation for the large payout comes from management's belief that the firm has more cash than it can profitably reinvest and that keeping the cash will adversely affect the incentives of the workforce to strive to create shareholder value. Consequently, the firm's management decided to pay the large cash dividend. What do you think the ex-dividend-date price of the company's shares will be? If the firm's management is right about the stimulating effect of disgorging cash, do you think that the drop in stock price after the ex-dividend date will be smaller than otherwise expected? a. The ex-dividend date price of the company's shares will be $ : (Round to the nearest cent.) b. If the firm's management is right about the stimulating effect of disgorging cash, do you think that the drop in stock price after the ex-dividend date will be smaller than otherwise expected? (Select all the choices that apply.) A. Since this is only a one-time dividend payment, the stock price should not change at all. O B. Given the underlying motivation for the large payout, it is possible that the stock price would not fall by $40.39. OC. This firm has just admitted that its growth days are over, thus the price will probably fall by more than $40.39. D. The large one-time dividend will attract attention and the stock price will most probably rise a few dollars.
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 11P
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Transcribed Image Text:(Calculating the ex-dividend stock price) Kingwood Corporation has a stock price of $115.62 per share and is contemplating the payment of a large, one-time cash dividend of $40.39 per share. The underlying
motivation for the large payout comes from management's belief that the firm has more cash than it can profitably reinvest and that keeping the cash will adversely affect the incentives of the workforce to strive to
create shareholder value. Consequently, the firm's management decided to pay the large cash dividend. What do you think the ex-dividend-date price of the company's shares will be? If the firm's management is right
about the stimulating effect of disgorging cash, do you think that the drop in stock price after the ex-dividend date will be smaller than otherwise expected?
a. The ex-dividend date price of the company's shares will be $
: (Round to the nearest cent.)
b. If the firm's management is right about the stimulating effect of disgorging cash, do you think that the drop in stock price after the ex-dividend date will be smaller than otherwise expected? (Select all the choices that
apply.)
A. Since this is only a one-time dividend payment, the stock price should not change at all.
O B. Given the underlying motivation for the large payout, it is possible that the stock price would not fall by $40.39.
OC. This firm has just admitted that its growth days are over, thus the price will probably fall by more than $40.39.
D. The large one-time dividend will attract attention and the stock price will most probably rise a few dollars.
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