5. Presto Cleaners recently liquidated its retail dry cleaning unit. That unit r

Question

5. Presto Cleaners recently liquidated its retail dry cleaning unit. That unit represented 35 percent of the firm's overall market value. Prior to the liquidation, the firm's stock was selling for $28 a share and there were 7,000 shares outstanding. The firm is preparing to distribute the entire liquidation proceeds to shareholders. How much will the liquidation dividend be per share? (Hint: First find market value of firm by multiplying number of shares outstanding by market price per share. Now you can find the value of the liquidation proceeds which is divided evenly among all shares outstanding.)

Explanation / Answer

Market value of the firm prior to liquidation = $28*7000 = $196000

The unit that is to be liquidated represented 35% of the firms overall market value

Therefore, liquidation proceeds = $196000*35% = $68600

Therefore, liquidation dividend = $68600/7000 = $9.8 per share

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