The balance sheet for Pie Crust, Inc., is shown here in market value terms. Ther
ID: 2802525 • Letter: T
Question
The balance sheet for Pie Crust, Inc., is shown here in market value terms. There are 15,000 shares of stock outstanding Market Value Balance Sheet Cash 470,000 Equity $140,000 $610,000 Fixed assets Total $610,000 Ttal 610,000 The company has declared a dividend of $1.20 per share. The stock goes ex-dividend tomorrow. Ignore any tax effects Requirement 1: What is the stock selling for today? (Do round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Stock price Requirement 2: What will it sell for tomorrow? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Stock price Requirement 3: What will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations.) Cash Equity Fixed assets Total TotalExplanation / Answer
1.
Current Stock Price = Market value of total equity / Number of share outstanding
= $610,000 / 15,000
= $40.67.
Current Stock price is $40.67.
2.
Dividend per share = $1.20.
stock is going ex dividend tomorrow. So,
Stock price tomorrow = $40.67 - $1.20
= $39.47
Stock price tomorrow will be $39.47.
c.
Total Dividend paid = 15,000 × $1.20
= $18,000.
So value of equity tomorrow = $610,000 - $18,000
= $592,000
Total value of cash = $140,000 - $18,000
= $122,000
Balance sheet of tomorrow will showns as
Assets
Amount
Liability and shareholder equity
Amount
Cash
$122,000
Long Term debt
0
Fixed assets
$470,000
Equity value
$592,000
Total
$592,000
Total
$592,000
Assets
Amount
Liability and shareholder equity
Amount
Cash
$122,000
Long Term debt
0
Fixed assets
$470,000
Equity value
$592,000
Total
$592,000
Total
$592,000
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