The market value balance sheet for Oracle Manufacturing is shown here. The company has declared a stock dividend of 10 percent. The stock goes ex-dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). Market Value Balance Sheet Cash $ 96,000 Debt $ 155,000 Fixed assets 800,000 Equity 741,000 Total $ 896,000 Total $ 896,000 There are 31,000 shares of stock outstanding.
What is the current share price?
What will the ex-dividend price be?
(a)-Current Share Price
Current Share Price = Total Market Value of Equity / Number of common shares outstanding
= $741,000 / 31,000 Shares outstanding
= $23.90 per share
The new number of common shares outstanding after the company has declared a stock dividend of 10 percent = Number of common shares outstanding x 110%
= 31,000 Shares x 110%
= 34,100 Shares outstanding
Therefore, the Ex-dividend price = Total Market Value of Equity / Number of common shares outstanding
= $741,000 / 34,100 Shares outstanding
= $21.73 per share
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