Question
In: Finance
The balance sheet for Sinking Ship Corp. is shown here in market value terms. There are...
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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?
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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 |
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