Question

The balance sheet for Fourth Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.

  

Market Value Balance Sheet
Cash	$	44,300		Equity	$	414,300
Fixed assets		370,000
Total	$	414,300		Total	$	414,300

  

The company has declared a dividend of $2.00 per share. The stock goes ex-dividend tomorrow.

Ignoring any tax effects, what is the stock selling for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Ignoring any tax effects, what will it sell for tomorrow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Answer 1

part A

current stock price	Equity / number of shares outstanding
equity	$414300
number of shares outstanding	5000
current stock price	$82.86

part B

new stock price	current stock price – dividend per share
current stock price	$82.86
dividend per share	$2
new stock price	$80.86

part C

total dividend	dividend per share * number of shares outstanding
dividend per share	$2
number of shares outstanding	5000
total dividend	$10000
current cash balance	$44300
less dividend paid	-$10000
new cash balance	$34300
current equity value	$414300
less dividend paid	-$10000
new equity value	$404300

market value balance sheet (amount in $)
cash	34300	equity	404300
fixed assets	370000
total	404300	total	404300