Midnight Hour Inc. has declared a $5.10 per-share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15%. New IRS regulations require that taxes be withheld at the time the dividend is paid. Midnight Hour sells for $83 per share and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?
The market value balance sheet for Outbox Manufacturing is shown here. Outbox has declared a 25% stock dividend. The stock goes ex-dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). There are 30,000 shares of stock outstanding. What will the ex-dividend price be?
Market Value Balance Sheet:
Cash: $145,000 Debt: $127,000
Fixed Assets: $598,000 Equity: $616,000
Total: $743,000 Total: $ 743,000
Ex-dividend Price = Declared Dividend - (Declared Dividend x Tax Rate) = $5.10 ...
The dividends in the market are determined.