The balance sheet for Levy Corp. is shown here in market value terms. There are
ID: 2767837 • Letter: T
Question
The balance sheet for Levy Corp. is shown here in market value terms. There are 6.000 shares of stock outstanding. The company has declared a dividend of $1.50 per share. The stock goes ex-dividend tomorrow. Ignoring any tax effects, what is the stock selling for today? (Do not round intermediate calculations and round your final 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 final answer to 2 decimal places, (e.g., 32.16)) Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations.)Explanation / Answer
a.
Total Value of equity = $505,200
Number of share outstanding = 6,000
Current stock price = $505,200 / 6,000
= $84.20
Hence, current stock price of Levy Corp. is $84.20 per share before ex-dividend date.
b.
Dividend payment = $1.50
Ex-dividend stock price = $84.20 - $1.50
= $82.70
Price of new stock is $82.70
Total dividend paid = 6,000 × $1.50
= $9,000
So the value of $9,000 will be decrease from cash on assets and by the same amount value of equity will decrease after ex-dividend date.
So after dividend payment balance sheet of company is shown below:
Assets
Amount
liabilities
Amount
Cash
$36,200
Equity
$496,200
Fixed assets
$460,000
Total
$496,200
Total
$496,200
Assets
Amount
liabilities
Amount
Cash
$36,200
Equity
$496,200
Fixed assets
$460,000
Total
$496,200
Total
$496,200
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