Question

# The balance sheet for Imagine Corp. is shown here in market value terms. There are 3,000...

The balance sheet for Imagine Corp. is shown here in market value terms. There are 3,000 shares of stock outstanding.

 Cash \$ 25,000 Equity \$ 167,000 Fixed assets 142,000 Total \$ 167,000 Total \$ 167,000

Topic: Repurchase of Stock

The company has declared a dividend of \$1.32 per share. The stock will go ex-dividend tomorrow. Ignore taxes.

a) What is the stock selling for today? (Round answer to 2 decimal places. Do not round intermediate calculations)

b) What will the stock sell for tomorrow? (Round answer to 2 decimal places. Do not round intermediate calculations)

c) What will be the new value of cash after the dividend is paid? (Round answer to 0 decimal places. Do not round intermediate calculations)

d) What will be the new value of shareholders' equity after the dividend is paid? (Round answer to 0 decimal places. Do not round intermediate calculations)

Instead of a dividend, the company has announced it is going to repurchase \$3,900 worth of stock.

e) What will be the new value of cash after the repurchase? (Round answer to 0 decimal places. Do not round intermediate calculations)

f) What will be the new value of shareholders' equity after the repurchase? (Round answer to 0 decimal places. Do not round intermediate calculations)

g) How many shares will be outstanding after the repurchase? (Round answer to 0 decimal places. Do not round intermediate calculations)

h) What will be the share price after the repurchase? (Round answer to 2 decimal places. Do not round intermediate calculations)

a) Stock Selling Today at Market Value of Equity/Shares Outstanding i.e. 167,000/3,000 = 55.67

b) Stock Vakue tomorrow = 55.67 - 1.32 = 54.35

c) Cash will decrease by the amount of dividend paid
New Value of Cash = 25,000 - 1.32 x 3,000 = 21,040

d) The stockholder equity will decrease by the same amount.
New Equity Value = 167,000 - 1.32 x 3,000 =  163,040

f) Cash will decrease by 3,900
New Value of Cash = 25,000 - 3,900 = 21,100

f) Equity will decrease by 3,900
New Equity Value = 167,000 - 3,900 =  163,100

g) Shares Repurchased = 3,900/(55.67) = 70.0
Shares Outstanding = 3,000 - 70 = 2,930

h) Share Price Post Repurchase = 163,100/2,930 = 55.67