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EpiscoWhat EpiscoWhat
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6 years ago
Delta Products has decided to spin-off one of its subsidiaries, Gamma Technologies.  Each Delta shareholder will receive 0.125 shares of Gamma for each share of Delta they own. Delta's price is $35.00 cum-dividend and immediately after the spin-off Gamma Technologies was trading for $24.00 per share.  In a perfect capital market, what would Delta Product's ex-dividend share price be after this transaction?
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
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#1
6 years ago
The value of the special dividend is:
0.125 Gamma shares × $24.00 per share = $3.00
So we expect Delta's stock price to drop by $3.00 per share.  So final stock price = $35.00 - $3.00 = $32.00
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