Question

Mesmer Analytic, a biotechnology firm, floated an initial public offering of 2,000,000 shares at a price of $10.00 per share. The firm's owner/managers held 60 percent of the company's $1.00 par value authorized and issued stock following the public offering. One month after the IPO, the firm's board of directors declared a one-time dividend of $0.50 per share payable to all stockholders, meaning that the owner/managers would receive an immediate dividend, in part out of the pockets of the new public stockholders.

What was the book value of stockholders’ equity before the special dividend was paid?

		$18 m
		$20 m
		$21 m
		$23 m
		$25 m

In the above question, what was the book value per share of the firm after the special dividend was paid?

		$2.57
		$3.05
		$3.33
		$3.67
		$4.10

Answer 1

Par value of 5,000,000 shares at $1	5,000,000
Additional paid in capital [2,000,000* (10-1)]	18,000,000.0
Total book value prior to special dividend	23,000,000.0
Less: Special dividend [5,000,000*0.5]	2,500,000
Book value	20,500,000.0
Value per share [20,500,000/5,000,000	4.1

Total no of shares of the company = 2,000,000 / (1-0.6)

= 5,000,000 shares

1. Option $23 million

2. Option $4.1