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ABC, Inc. has just announced today that it would pay $1/share dividends to each shareholder of...

ABC, Inc. has just announced today that it would pay $1/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 $1 in cash, the company announced today that it would use the aggregate equivalent of $1/share dividends to buy back outstand shares, would its share price increase or decline upon the announcement? Explain.

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Answer #1
Price
Record Date June 5, 2019 (Wed) 30
Ex - Dividend date June 4, 2019 (Tue) 29 a)
Before Ex - Dividend date June 3 (Mon) 30 b)
c) Share price will increase upon the announcement of stock  buyback  because the market  perceives a buyback as a positive indicator for a company , Repurchased of shares reduces the number of outstanding shares in the market so  the relative ownership stake of each investor will  increase.
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