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

Question

The balance sheet for Chevelle Corp. is shown here in market value terms. There are 9,000 shares of stock outstanding.

                                                        Market Value Balance Sheet

The company has declared a dividend of $ 1.40 per share. The stock goes ex divi-dend tomorrow. Ignoring any tax effects, what is the stock selling for today? What will it sell for tomorrow? What will the balance sheet look like after the dividends are paid?

Cash $43,700 Equity 353,700 Fixeds Assets 310,000 Total 353,700 353700

Explanation / Answer

Answer:

Stock price for today = Equity / Number of shares = 353,700 / 9,000 = $39.30

Once price goes ex-dividend or dividend is distributed, equity is reduced by dividend amount. Stock price when it goes ex dividend tomorrow = $353,700 - 9,000*1.4 / 9,000 = $37.90

Balance sheet after dividend is paid:(In $)

Cash(43,700 - 9000*1.4) 31,100 Equity(353,700 * 9000 *1.4) 341,100 Fixed Assets 310,000 Total 341,100 341,100

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