The market value balance sheet for Vena Sera Manufacturing is shown here. Vena Sera has declared a 25 percent stock dividend. The stock goes ex dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). There are 17,000 shares of stock outstanding. |
Market Value Balance Sheet | |||
Cash | $207,000 | Debt | $189,000 |
Fixed assets | 356,000 | Equity | 374,000 |
Total |
$563,000 |
Total |
$563,000 |
Required: |
(a) | What is the stock price today? |
(b) | What will the ex-dividend price be? |
(a)-Stock price today
Stock price today = Total Market Value of Equity / Number of common shares outstanding
= $374,000 / 17,000 Shares
= $22.00 per share
(b)-Ex-dividend price
The new number of common shares outstanding after Sera has declared a 25 percent stock dividend = Number of common shares outstanding x 125%
= 17,000 Shares x 125%
= 21,250 Shares
Therefore, the Ex-dividend price = Total Market Value of Equity / Number of common shares outstanding
= $374,000 / 21,250 Shares
= $17.60 per share
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