Drew Financial Associates currently pays a quarterly dividendof 50 cents per sha

Question

Drew Financial Associates currently pays a quarterly dividendof 50 cents per share. This quarter's dividend will be paidto stockholders of record on Friday, February 22, 2007. Drewhas 200,000 common shares outstanding. The retained earningsaccount has a balance of $15 million before the dividend, and Drewholds $2.5 million in cash. a) what is the ex-dividend date for this quarter? b)Drew's stock traded for $22 per share the day prior to theex-dividend date. What would you expect the stock price toopen at on the ex-dividend date? Give some reasons why thismay occur. c) what is the effect of the dividend payment on Drew's cash,retained earnings, and total assets? Drew Financial Associates currently pays a quarterly dividendof 50 cents per share. This quarter's dividend will be paidto stockholders of record on Friday, February 22, 2007. Drewhas 200,000 common shares outstanding. The retained earningsaccount has a balance of $15 million before the dividend, and Drewholds $2.5 million in cash. a) what is the ex-dividend date for this quarter? b)Drew's stock traded for $22 per share the day prior to theex-dividend date. What would you expect the stock price toopen at on the ex-dividend date? Give some reasons why thismay occur. c) what is the effect of the dividend payment on Drew's cash,retained earnings, and total assets?

Explanation / Answer

(a) Ex-dividenddate: This date is two business days before the date ofrecord.              Record Date =Friday, February 22, 2007       Ex-dividend date = Wednessday,February20,2007 (b) Drew's Current Stock Value = $22 pershare              Thestock price will fall by the amount of the dividend on the ex-date(Time 0)        Ifthe dividend is $0.50 per share, the price will be equal to$22 - $0.50 = $21.50 on the ex-dividend date       Stock Price on the Ex-dividend date = $22 -$0.50 = $21.50 (c) Cash                              $2,500,000 CashDividend(200,000*$0.50)     $100,000 Cash after dividend $2,400,000 RetainedEarnings                 $15,000,000 DividendPayment                      $100,000 $15,100,000 Retained earnings after dividend $15,100,000 (a) Ex-dividenddate: This date is two business days before the date ofrecord.              Record Date =Friday, February 22, 2007       Ex-dividend date = Wednessday,February20,2007 (b) Drew's Current Stock Value = $22 pershare              Thestock price will fall by the amount of the dividend on the ex-date(Time 0)        Ifthe dividend is $0.50 per share, the price will be equal to$22 - $0.50 = $21.50 on the ex-dividend date       Stock Price on the Ex-dividend date = $22 -$0.50 = $21.50 (c) Cash                              $2,500,000 CashDividend(200,000*$0.50)     $100,000 Cash after dividend $2,400,000 RetainedEarnings                 $15,000,000 DividendPayment                      $100,000 $15,100,000 Retained earnings after dividend $15,100,000

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.