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

ID: 2759860 • Letter: T

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 $0.90 per share. The stock goes ex-dividend tomorrow. Ignore all 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).)

What will it sell for tomorrow? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

The balance sheet for Pie Crust, Inc., is shown here in market value terms. There are 25,000 shares of stock outstanding.

Answer:1 The stock price is the total market value of equity divided by the shares outstanding, so:

P 0 = $745,000 equity/25,000 shares = $29.80 per share

Answer:2 Ignoring tax effects, the stock price will drop by the amount of the dividend, so:

P X = $29.80 – 0.90 = $28.90

Answer:3 The total dividends paid will be: $0.90 per share(25,000 shares) = $22500.

The equity and cash accounts will both decline by $22500.

Market Value Balance Sheet Cash 152500 Fixed assets 570,000 Equity 722500 Total 722500 Total 722500

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