The balance sheet for Ferguson Corp. is shown here in market value terms. There
ID: 2754095 • Letter: T
Question
The balance sheet for Ferguson Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
Market Value Balance Sheet Cash
$ 44,500 Equity $ 434,500
Fixed assets 390,000
Total $ 434,500 Total $ 434,500
The company has declared a dividend of $1.30 per share. The stock goes ex dividend tomorrow. Ignoring any tax effects, what is the stock selling for today? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Stock price $ per share _________
Ignoring any tax effects, what will it sell for tomorrow? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Stock price $___________
per share Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations.)
Balance Sheet
Cash $___________ Equity $______________
Fixed assets_________
Total $___________ Total $__________
Explanation / Answer
Answer: The share price is the total market value of equity divided by the shares outstanding, so:
P0 = $ 434,500 equity/5 000 shares = $86.9 per share
Ignoring tax effects, the share price will drop by the amount of the dividend, so:
PX = $86.9 – 1.30 = $85.6
The total dividends paid will be:
$1.30 per share(5 000 shares) = $6500
The equity and cash accounts will both decline by $6500. The new balance sheet will be:
Market value Balance sheet Cash 38000 Fixed assets 390000 Equity 428000 Total 428000 Total 428000Related Questions
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