The balance sheet for Sinking Ship Corp. is shown here in market value terms. There are...

The balance sheet for Sinking Ship Corp. is shown here in market value terms. There are 6,000 shares of stock outstanding.

Market Value Balance Sheet
Cash	$	44,900	Equity	$	474,900
Fixed assets		430,000

Total	$	474,900	Total	$	474,900

The company has declared a dividend of $1.80 per share. The stock goes ex dividend tomorrow.

Ignoring any tax effects, what is the stock selling for today?

Ignoring any tax effects, what will it sell for tomorrow?

Ignoring any tax effects, what will the balance sheet look like after the dividends are paid?

Balance Sheet
Cash	not attempted	Equity	not attempted
Fixed assets	not attempted
Total	not attempted	Total	not attempted

Solutions

Expert Solution

Ignoring any tax effects, what is the stock selling for today?

Since the given balance sheet is in market value terms

Current selling price per share = Market value of equity / No. of shares

= 474900/6000

= $79.15

Ignoring any tax effects, what will it sell for tomorrow?

The stock goes ex dividend tomorrow. So the stock price will fall by the amount of dividend. Hence

Stock price tomorrow = Current selling price per share - Dividend per share

= 79.15-1.8

= $77.35

Ignoring any tax effects, what will the balance sheet look like after the dividends are paid?

Cash and equity will decreased by the amount of total dividend

Cash (44900-(6000*1.8))	34,100	Equity (6000*77.35)	464,100
Fixed assets	430,000

Total	464,100	Total	464,100

jeff jeffy answered 10 months ago

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