The balance sheet for Ferguson Corp. is shown here in market value terms. There

Question

The balance sheet for Ferguson Corp. is shown here in market value terms. There are 7,000 shares of stock outstanding. 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? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Ignoring any tax effects, what will it sell for tomorrow? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations.)

Explanation / Answer

stock selling price today=Market value of equity/shares outstanding=394,100/7,000=56.30

Thus stock price today=$ 56.30 per share

stock selling price tomorrow

= (Market value of equity-Dividends paid)/shares outstanding (equity drops by dividends paid)

= (394,100-1.8*7000) /7,000=(394,100/7,000)-1.8

= 56.30 - 1.80

= 54.50

Thus , Tomorrow stock price is $ 54.50 per share.

Thus stock price tomorrow =$ 54.50 per share

Cash=44100-1.8*7000=31500

Equity=394100-7000*1.8=381500

Cash 31500 Equity 381500 Fixed Assets 350000 Total 381500 Total 381500

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