Assume the Current Share Price of Company a Is $4

question 18

Multiple Choice

Assume the current share price of Company A is $4.50 and on the following day these shares will begin trading ex-dividend.If the dividend is 40 cents per share fully franked,and the company tax rate is 30 per cent,what is the expected ex-dividend share price?

• A)$4.10
• B)$4.50
• C)$3.93
• D)$4.03

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Definitions:

Present Value

The present valuation of money to be received in the future or recurrent cash inflows, accounting for a chosen rate of interest.

Compounded Annually

Interest on an investment or loan calculated once a year, where each year's interest payment includes interest on the original principal and on the accumulated interest of previous periods.

Market Rate

The prevailing rate or price at which goods, services, or securities are traded in a competitive marketplace.

Bond Issue

The method through which a corporation or governmental entity generates capital by issuing bonds to investors.