Problem: Drew Financial Associates currently pays a quarterly dividend of 50 cents per share. This quarter's dividend will be paid to stockholders of record on Friday, February 22, 2007. Drew has 200,000 common shares outstanding. The retained earnings account has a balance of $15 million before the dividend, and Drew holds $2.5 million in cash.
1) What is the ex-dividend date for this quarter?
2) Drew's stock traded for $22 per share the day prior to the ex-dividend date. What would you expect the stock price to open at on the ex-dividend date? Give some reasons why this might not occur.
3) What is the effect of the dividend payment on Drew's cash, retained earnings, and total assets?