On Monday, the stock of the Wicker Company was trading at $25. The CEO was satisfied with
Question:
On Monday, the stock of the Wicker Company was trading at $25. The CEO was satisfied with this price as it reflected the prospects of the firm (future dividend growth and required rate of return). The firm’s scientists worked all Monday night to complete a top secret project, which will dramatically improve the quality of Wicker’s products and result in a huge increase in sales for the next 10 years. On Tuesday evening, you have dinner with the CEO (he is a client of yours) who is complaining that the “markets cannot be efficient” because the stock price of WC has not changed despite this dramatic change in the firm’s prospects. Provide the CEO with two different explanations about why there was no reaction on Tuesday.
Dividend A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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