To calculate: Ex-
Introduction:
Ex-dividend price: The date between the announcement date and payment date is ex-dividend date. A stock which trades on ex-dividend date is termed as stock on ex-dividend. A stock becomes ex-dividend, when the person gets the payment of dividend.
Answer to Problem 14.2C
Explanation of Solution
Given information:
P Incorporation declares a dividend at $6 per share; the rate of tax of dividends is at 25%. New regulation declares that during the time of payment of dividends, taxes were withheld. The selling prices of stocks are $111 per share and the stock goes to ex-dividend.
Formulae:
The formula to calculate the ex-dividend price:
The formula to calculate the after tax dividend:
Compute after tax dividend:
Hence, the dividend after tax is $4.5.
Compute ex dividend price:
Hence, the ex-dividend price is $106.5.
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Chapter 14 Solutions
F371 Essn. of Corporate Finance >C< By Ross MCG Custom ISBN 9781259320576