The market value balance sheet for Banner Manufacturing is shown in the table be
ID: 2699659 • Letter: T
Question
The market value balance sheet for Banner Manufacturing is shown in the table below. Outland has declared a 20 percent stock dividend. The stock goes ex-dividend tomorrow (chronology for a stock dividend is similar to that for a cash dividend). There are 45,000 shares of stock outstanding. Calculate the ex-dividend price.
Stock Dividends: Market Value Balance Sheet
Cash: $165,000.
Debt: $177,000.
Fixed Assets: $658,000.
Equity: $646,000.
Total: $823,000.
Total: $823,000.
Stock Dividends: Market Value Balance Sheet
Cash: $165,000.
Debt: $177,000.
Fixed Assets: $658,000.
Equity: $646,000.
Total: $823,000.
Total: $823,000.
Explanation / Answer
Hi,
Please find the answer as follows:
Stock Dividend will have no impact on Equity Value. It will result in an increase in the number of outstanding shares.
Number of Shares after Stock Dividend would be = 45000*(1+.20) = 54000
Ex Dividend Price = Equity Value/Number of Outstanding Shares = 646000/54000 = $11.96
Answer is 11.96.
Thanks.
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