Question

xvi. The balance sheet for Ferguson Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding. Market Value Balance Sheet Cash $ 44,500 Equity $ 434,500 Fixed assets 390,000 Total $ 434,500 Total $434,500 The company has declared a dividend of $1.30 per share. The stock goes ex dividend tomorrow. Ignoring any tax effects, what will it sell for tomorrow? You must show work to get full credit. a. $69.10 b. $76.70 c. $78.00 d. $85.60 e. $86.90 How would the answer change if the dividend were larger? Why?

Answer 1

Ex-dividend stock price:

The stock market will decrease the price of a stock by the amount of dividend paid on the ex-dividend date.

Stock price = equity/number of shares outstanding
= 434500/5000
= 86.9

Dividend = 1.3

Ex dividend stock price = stock price- dividend.
= 86.9-1.3
= 85.6

Answer: d. 85.6