On July 20, 2004, Microsoft surprised the market by announcing a $3 dividend. The ex-dividend date was November 17, 2004, and the payment date was December 2, 2004.

Its stock price at the time was about $28. It also changed the terms of its employee stock options so that each exercise price was adjusted downward to

“Closing price” means the official NASDAQ closing price of a share of Microsoft common stock on the last trading day before the ex-dividend date.
Evaluate this adjustment. Compare it with the system used by exchanges to adjust for extraordinary dividends (see Business Snapshot 9.1).

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Pre-dividend exercise price x Closing price-$3.00 Closing price The number of shares covered by each stock option outstanding was adjusted upward to Number of shares pre-dividend x- Closing price Closing price-$3.00