Stock Dividends. The market value balance sheet for Outbox Manufacuring is shown

Question

Stock Dividends. The market value balance sheet for Outbox Manufacuring is shown here. Outbox has declared a 25 percent stock dividend. The stock goes ex divided tomorrow (the chronology for a stock dividend is smilar to that for a cash dividend). There are 30,000 shares of stock outstanding. What will the ex-dividend price be? CHAPTER 16: PROBLEM 7 Stock Dividend 25% # of shares of stock outstanding 30,000 Market Value Balance Sheet: Cash $145,000 Fixed Assets $598,000 Total $743,000 Debt $127,000 Equity $616,000 Total $743,000 Find the market price of stock by using the equity and # of shares outstanding #NAME? New shares outstanding = #NAME? New Stock price = #NAME?

Explanation / Answer

P0 = $616,000 equity/30,000 shares = $20.53per share

The shares outstanding will increase by 20.53 percent because of the declared stock dividend, so:

New shares outstanding =30,000(1.25) = 47500

The new stock price is the market value of equity divided by the new shares outstanding, so:

PX = $616000 equity / 475000 shares = $12.96per

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