Question

Wilfred Nadeau owns 300 shares of Consolidated Glue. The​ company's board of directors recently declared a cash dividend of 45 cents a share payable April 18 ​(a Wednesday) to shareholders of record on March 22 ​(a Thursday). a. How much in​ dividends, if​ any, will Wilfred receive if he sells his stock on March 20​? b. Assume Wilfred decides to hold on to the stock rather than sell it. If he belongs to the​ company's dividend reinvestment​ plan, how many new shares of stock will he receive if the stock is currently trading at ​$39.80 and the plan offers a 3.4 % discount on the share price of the​ stock? (Assume that all of​ Wilfred's dividends are diverted to the​ plan.) Will Wilfred have to pay any taxes on these​ dividends, given that he is taking them in stock rather than​ cash?

Answer 1

Answer:

a. Zero dividend.

b. 3.5 new shares;

texes will be paid.

Explanation:

a. March 20 is a date earlier than when the dividends are too be paid on April 18, and as such Wilfred Nadeau will not receive any dividend if he sells his stocks since he no longer has ownership of them.

b. 45 cents dividends per 300 stocks of Wilfred is $135 (reinvestment dividend plan).

With a discount of 3.4% at $39.8 (3.4%*39.8) current price per stock makes the total cost per stock after discount= $38.4.

Dividing the reinvestment dividend plan over the discounted price (135/38.4) = 3.5 new shares, According to the requirements of law the investor must still pay tax annually on his or her dividend income, whether it is received as cash or reinvested.