Question

The balance sheet for Ferguson Corp. is shown here in market value terms. There are 6,000 shares of stock outstanding.

  

Market Value Balance Sheet
Cash	$	44,900		Equity	$	474,900
Fixed assets		430,000
Total	$	474,900		Total	$	474,900

  

The company has declared a dividend of $1.80 per share. The stock goes ex dividend tomorrow.

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

  

Stock price

$  per share

  

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

  

Stock price

$  per share

  

Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations.)

Balance Sheet
Cash	$			Equity	$
Fixed assets
Total	$			Total	$

Answer 1

a). P0 = total market value of equity / shares outstanding

= $474,900 / 6,000 = $79.15

b). Px = stock price - amount of the dividend

= $79.15 - $1.80 = $77.35

c). Total Dividend Paid = Dividends Paid x No. of Outstanding Shares = $1.80 x 6,000 = $10,800

The equity and cash accounts will both decline by $10,800.

Balance Sheet
Cash	$	34,100		Equity	$	464,100
Fixed assets		430,000
Total	$	464,100		Total	$	464,100