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The market value balance sheet for Banner Manufacturing is shown in the table be

ID: 2699659 • Letter: T

Question

The market value balance sheet for Banner Manufacturing is shown in the table below. Outland has declared a 20 percent stock dividend. The stock goes ex-dividend tomorrow (chronology for a stock dividend is similar to that for a cash dividend). There are 45,000 shares of stock outstanding. Calculate the ex-dividend price.

Stock Dividends: Market Value Balance Sheet

Cash: $165,000.

Debt: $177,000.

Fixed Assets: $658,000.

Equity: $646,000.

Total: $823,000.

Total: $823,000.

Stock Dividends: Market Value Balance Sheet

Cash: $165,000.

Debt: $177,000.

Fixed Assets: $658,000.

Equity: $646,000.

Total: $823,000.

Total: $823,000.

Explanation / Answer

Hi,


Please find the answer as follows:


Stock Dividend will have no impact on Equity Value. It will result in an increase in the number of outstanding shares.


Number of Shares after Stock Dividend would be = 45000*(1+.20) = 54000


Ex Dividend Price = Equity Value/Number of Outstanding Shares = 646000/54000 = $11.96


Answer is 11.96.


Thanks.