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

Question

The balance sheet for Levy Corp. is shown here in market value terms. There are 7,000 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 7,000 shares of stock outstanding.

Explanation / Answer

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

P0 = $394,000 equity / 7,000 shares = $56.29 per share

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

Price of stock Tomorrow = $56.29 – 1.80

Price of stock Tomorrow = $54.59

The total dividends paid will be:

$1.80 per share * (7,000 shares) = $12,600

The equity and cash accounts will both decline by $12,600

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