Dividend policy and firm value: You purchased 4,000 shares of High-Div Co. several years ago at $50 per share. The company has decided to pay a special dividend of $2.00 per share. Dividend payments are taxed at 15 percent. You intend to reinvest in the company through the dividend reinvestment program. If the company's stock is trading at $48.20 following the dividend payment, how many additional shares can you buy through the dividend reinvestment program?

Question

Quizplus · Accepted Answer

After the dividend payment, you receive $8,000 (4,000 shares * $2.00). After a 15% tax, you have $6,800 to reinvest. At $48.20 per share, you can buy approximately 141 additional shares ($6,800 / $48.20).

Dividend Policy and Firm Value: You Purchased 4,000 Shares of High-Div