Rachel Co. has the following account balances: Cash $25,000 Liabilities $60,000

ID: 2788705 • Letter: R

Question

Rachel Co. has the following account balances:

Cash $25,000 Liabilities $60,000

Fixed Assets 100,000 Equity 65,000

_____________________ _______________________________

Total Assets $125,000 Total Liabilities and Equity $125,000

There are 5,000 shares of Common Stock outstanding.

a). If the firm issues a $1.50 dividend, what will the ex-dividend price be?

b). What will the new account balances be? (Present the balance sheet after the dividend is paid)

Price now=65000/5000=13

Ex-dividend price will be price-dividend=13-1.5=11.5

if the firm issued 1.5 dividend , total dividends will be 1.5*5000=7500

So, cash will go down by 7500. Cash will become 17500. Assets will remain 100000. Total Assets will become 17500+100000=117500

Liabilities will remain 60000. Hence, Equity will become 117500-60000=57500

We can verify our ex-dividend here as well:

Ex-dividend price will become 57500/5000=11.5

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