Question

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?

Answer 1

(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

(b)-Ex-dividend price

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