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Chapter 17, Problem 2P

ABC Corporation announced that it will pay a dividend to all shareholders of record as of Monday, April 2, 2012. It takes three business days of a purchase for the new owners of a share of stock to be registered.

  1. a. When is the last day an investor can purchase ABC stock and still get the dividend payment?
  2. b. When is the ex-dividend day?
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Kathy Snow wishes to purchase shares of Countdown Computing, Inc. The company's board of directors has declared a cash dividend of $0.80 to be paid to holders of record on Wednesday, May 12. a. What is the last day that Kathy can purchase the stock (trade date) and still receive the dividend? b. What day does this stock begin trading ex dividend? c. What change, if any, would you expect in the price per share when the stock begins trading on the ex dividend day? d. If Kathy held the stock for less than one quarter and then sold it for $39 per share, would she achieve a higher investment return by (1) buying the stock prior to the ex dividend date at $35 per share and collecting the $0.80 dividend or (2) buying it on the ex dividend date at $34.20 per share but not receiving the dividend?
Kathy Snow wishes to purchase shares of Countdown​ Computing, Inc. The​ company's board of directors has declared a cash dividend of ​$1.13 to be paid to holders of record on​ Wednesday, Sep. 21. a. What is the last day that Kathy can purchase the stock and still receive the​ dividend?   b. What day does this stock begin trading ex​ dividend?   c. What​ change, if​ any, would you expect in the price per share when the stock begins trading on the​ ex-dividend day?   d. Kathy believes that she will be able to sell the stock for $46.92 in a few months. Tomorrow is the​ ex-dividend date, and the stock price now is ​$42.92. Is she better off buying the stock now so she can capture the​ dividend, or should she wait until​ tomorrow, miss the​ dividend, and buy the stock at a slightly lower​ price?
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Chapter 17 Solutions

Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)

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