Question
ABC, Inc. has just announced today that it would pay $2/share dividends to each shareholder of record on June 5, 2019 (Wed). Its current share
ABC, Inc. has just announced today that it would pay $2/share dividends to each shareholder of record on June 5, 2019 (Wed). Its current share price is $30 and its shareholders average tax rate is 30%. Assume that there are no other news or developments that will affect the stock prices between now and the dates: (A) What will likely be the price of its stock on June 4, 2019 (Tue)? (B) What will likely be the price on June 3 (Mon)? (C) Instead of paying $2 in cash, the company announced today that it would use the aggregate equivalent of $2/share dividends to buy back outstand shares, would its share price increase or decline upon the announcement? Explain.
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