The balance sheet for Throwing Copper, Inc., is shown here in market value terms

Question

The balance sheet for Throwing Copper, Inc., is shown here in market value terms. There are 28,000 shares of stock outstanding.

The company has declared a dividend of $.80 per share. The stock goes ex dividend tomorrow. Ignore all 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.)

Stock price            $

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

Stock price            $

What will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Market Value Balance Sheet Cash $ 111,000 Fixed assets 524,600 Equity $ 635,600 Total $ 635,600 Total $ 635,600

Explanation / Answer

A. The stock price today = Total market value of equity/ Number of shares = 6335,600 /28,000 = $23.34

B. Stock Price tomorrow will reduce by $0.8. So, Stock Price tomorrow = 23.34 - 0.8 = $22.54

C. Cash will reduce by the amount of dividend paid and also the total equity on the other side will reduce.

So the total Reduction will be = 0.8*28,000 = 22,400

Cash will reduce by 22,400 and The Total Equity will reduce by 22,400

The new Balance sheet will be:

Market Value Balance Sheet Cash $ 88,600 Fixed assets 524,600 Equity $ 613,200 Total $ 613,200 Total $ 613,200

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