Answer:
The new price will be $38.57.
Explanation:
The initial price of 120,000 outstanding shares is $54.
There are no market imperfections or taxes.
The firm declares a dividend of 40%.
The new share price will be
= [tex]Initial\ price\times(\frac{1}{1+ dividend} )[/tex]
= [tex]54\times(\frac{1}{1+0.4} )[/tex]
= [tex]54\times\frac{1}{1.4}[/tex]
= [tex]54\times0.71[/tex]
= [tex]$38.57[/tex]
