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

Question

The balance sheet for Pie Crust Inc., is shown here in market value terms. There are 30.000 shares of stock outstanding. The company has declared a dividend of $1.20 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).) Requirement 2: What will it sell for tomorrow? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Requirement3: What will the balance sheet look like after the dividends are paid?

Explanation / Answer

Answer:

1. Stock selling for today = Equity in $ / number of shares = 670,800/30,000 = $ 22.36

2. Stock selling for tomorrow = Equity in $ / number of shares = (670,800 - 30,000 *1.20) / 30,000 = $ 21.16

Note:- Tomorrow shares are going to be ex-dividend and divided declared will be reduced from equity.

3. Balance sheet after dividend payment:

Cash 100000 Fixed assets 534800 Equity 634800 Total 634800 Total 634800

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