The ex-dividend date: ABC. Co is currently trading at $22.00 per share. The company is paying a regular cash dividend of $0.30 per share, and an extra dividend of $0.05 per share. Tomorrow is the ex-dividend day. The tax rate on dividends is 15 percent. Assuming there is no new information released about the company, how much do you expect the company's stock to trade for tomorrow?

Question

Quizplus · Accepted Answer

On the ex-dividend day, the stock price will decrease by the amount of the regular dividend ($0.30) and the extra dividend ($0.05), which equals $0.35 per share. So, the stock price tomorrow will be $21.65 ($22.00 - $0.35). However, we need to also take into account the tax on dividends, which is 15% of the regular dividend ($0.30 x 0.15 = $0.045). Therefore, the actual decrease in stock price will be $0.35 - $0.045 = $0.305. Thus, the stock is expected to trade for $21.70 tomorrow ($22.00 - $0.305).

The Ex-Dividend Date: ABC