Following trading hours on April 25, 2017, Costco Wholesale Corporation (symbol: COST) announced that it would pay a special dividend of $7.00 per share in early May. The ex-dividend date for this special dividend was May 8, 2017. Thus, if you held COST stock at the beginning of May 8, 2017, you would have been paid the special dividend of $7 per share. Otherwise, you would have not received the special dividend. The purpose of this question is to examine the COST price reaction on the announcement date and ex-dividend date.

a) Download daily price data for COST from Yahoo! Finance for the period April 3, 2017 to June 1, 2017. Graph the price series (use the closing price, not the adjusted closing price) and highlight the day the special dividend was announced and the ex-dividend day.

b) Theoretically, in a frictionless environment with no taxes or signaling effects, what should be theCOST price change immediately following the special dividend announcement? What should be the COST price change on the ex-dividend date?

c) What is the change in stock price from the close of the announcement day to the close of the following business day? If this is different from your answer in part (b), provide a possible explanation for the difference.

d) What is the change in stock price from the close of the business day preceding the ex-dividend date to the close of the ex-dividend date? Calculate the implied effective dividend tax rate using this price change and the special dividend per share.

e) The top marginal tax rates in 2017 for dividends and capital gains are both 20 percent. Based on those numbers, what is the effective dividend tax rate? Why do you think this is different from your answer in part (d)? (This difference is most likely related to reasons other than taxes.)