The balance sheet for Levy Corp. is shown here in market value terms. There are
ID: 2758750 • Letter: T
Question
The balance sheet for Levy Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
Ignoring any tax effects, what is the stock selling for today? (Do not round intermediate calculations and 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 and round your answer to 2 decimal places, e.g., 32.16.)
The balance sheet for Levy Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
Explanation / Answer
Number of share outstanding = 5,000
Current Dividend = $1.70 per share
So total Dividend Paid = $1.70 × 5,000
= $8,500
Total cash dividend will pay tomorrow will be $8,500.
Total value of equity = $464,800
a.
Ignoring any tax effects, the stock selling for today is calculated below:
Stock Selling Today = Total Value of equity / Number of outstanding share
= $464,800 / 5,000
= $92.96
Hence, ignoring any tax effects, the stock selling for today is $92.96 per share.
b.
Ignoring any tax effects, the stock selling tomorrow (ex-dividend date) is calculated below:
Stock Selling Today = (Value of equity – Total Dividend Payment) / Number of outstanding share
= ($464,800 - $8,500) / 5,000
= $91.26
Hence, ignoring any tax effects, the stock selling tomorrow (ex-dividend date) is $91.26 per share and total value of equity will be $456,300.
c.
Balance sheet after dividend payment will be change by cash will decrease from assets side by $8,500 and value of equity from liability side will decrease by $8,500. All other items in balance sheet remains same.
Balance after dividend payment is shown below:
Assets
Amount
Liabilities
Amount
Cash
$36,300
Equity
$456,300
Fixed Assets
$420,000
Total
$456,300
Total
$456,300
Assets
Amount
Liabilities
Amount
Cash
$36,300
Equity
$456,300
Fixed Assets
$420,000
Total
$456,300
Total
$456,300
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