Schaeffer Shippers announced on May 1 that it will pay a dividend of $1.20 per share on June 15 to all holders of record as of May 31st.The firm's stock price closed today at $42 a share.Assume all investors are in the 22 percent tax bracket.If tomorrow is the ex-dividend date,what would you expect the opening price to be tomorrow morning assuming all else is held constant?

Question

Quizplus · Accepted Answer

The ex-dividend price can be calculated by subtracting the after-tax dividend from the current stock price. The after-tax dividend is $1.20 * (1 - 0.22) = $0.936. Therefore, the expected opening price would be $42 - $0.936 = $41.064, which rounds to $41.06.

Schaeffer Shippers Announced on May 1 That It Will Pay