Question

The common stock of Gallaghan's closed at $36.80 a share today. Tomorrow morning, the stock goes ex-dividend. The dividend that is being paid this quarter is $1.40 a share. The tax rate on dividends is 15 percent. All else equal, what should the opening stock price be tomorrow morning

Answer 1

$ 35.61

Step-by-step explanation:

Given data:

Today's price for the single stock = $ 36.80

Dividends to be paid this quarter = $ 1.40 per share

The tax rate on the dividends = 15 %

thus,

tax on the dividend per share = 15 % of $ 1.40

or

tax on the dividend per share = 0.15 × $ 1.40 = $ 0.21

thus,

the net dividend = $ 1.40 - $ 0.21 = $ 1.19

Therefore,

tomorrow's price for the stock = Today's stock price - The dividends paid

or

tomorrow's price for the stock = $ 36.80 - $ 1.19 = $ 35.61