Question

The balance sheet for Fourth Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.

  

Market Value Balance Sheet
Cash	$	44,300		Equity	$	414,300
Fixed assets		370,000
Total	$	414,300		Total	$	414,300

  

The company has declared a dividend of $2.00 per share. The stock goes ex-dividend tomorrow.

Ignoring any tax effects, what is the stock selling for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Ignoring any tax effects, what will it sell for tomorrow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Current stock price:
New stock price:

Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

	Market Value Balance Sheet Cash $ Equity $ Fixed assets Total $ Total $

Answer 1

Calculation of current stock price
Current stock price	Market value of equity/No of shares outstanding
Current stock price	414300/5000
Current stock price	$82.86
With declaration of stock dividend, current stock price would decrease to the extent of dividend declared
New stock price	Current stock price - Dividend declared
New stock price	82.86-2
New stock price	$80.86
With dividend paid, the equity and cash of company would decrease
Decrease in cash and equity	5000*2
Decrease in cash and equity	$10,000
Market value balance sheet
Market value balance sheet
Cash (44300-10000)	$34,300	Equity (414300-10000)	$404,300
Fixed assets	$370,000
Total	$404,300		$404,300