Saved Help Save Exit Check my w The balance sheet for Rami C

Saved Help Save& Exit Check my w The balance sheet for Rami Corp. is shown here in market value terms. There are 8,000 shares of steck outstanding. Market Value Balance Sheet Cash 44,400 Equity $424,400 Fixed assets 380,000 $424,400 Total Total $424,400 The company has declared a dividend of $1.20 per share. The stock goes ex dividend tomorrow Ignoring any tax effects, what is the stock selling for today? (Do nat round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock selling price $? per share ects, what will the stock sell for tomorrow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock selling price $? per share Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? ket Value Balance Sheet Cash Equity Fixed assets Prev 5of 5 Next>

Solution

(1) What is the stock selling today

Stock price = Equity / Number of shares outstanding = 424,400 / 8000 = 53.05

(2) What is the stock selling tomorrow

Stock price ( ex-dividend) = [ Equity - Dividend ] / Number of shares outstanding

= [ 424400 - 1.20 * 8000 ] / 8000 shares = 51.85

(3) Balance sheet

Payment of dividend effects two accounts ..... (1) cash account decreases and (2) equity also decreases due to decrease of retained profits.

Fixed assets remains same, before and after payment of dividends.

	BALANCE SHEET
Cash	34800	Equity	414800
Fixed assets	380000
	414800		414800