The balance sheet for Pie Crust, Inc., is shown here in market value terms. Ther

Question

The balance sheet for Pie Crust, Inc., is shown here in market value terms. There are 25,000 shares of stock outstanding. The company has declared a dividend of $1.30 per share. The stock goes ex-dividend tomorrow. Ignore all tax effects. Requirement 1: What is the stock selling for today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) What will it sell for tomorrow? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) What will the balance sheet look like after the dividends are paid?

Explanation / Answer

Part 1

Stock price = total equity / no. of shares

                    = 696,750 / 25000

                  = $27.87

Part 2

Ex dividend price = price – dividend

                               = 27.87 -1.30

                               = $26.57

Part 3

Total dividend paid = 25000 x 1.30

                                    = 32500

Cash balance after dividend = 156,000 -32,500

                                                   = 123,500

Balance sheet

Cash                 123,500                    Equity (26.57 x 25,000) 6644250

Fixed assets     540,750

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