The balance sheet for Pie Crust, Inc., is shown here in market value terms. Ther

ID: 2777623 • Letter: T

Question

The balance sheet for Pie Crust, Inc., is shown here in market value terms. There are 28,000 shares of stock outstanding.

The company has declared a dividend of $0.80 per share. The stock goes ex-dividend tomorrow. Ignore all 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).)

What will it sell for tomorrow? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Market Value Balance Sheet

1.What is the stock selling for today?

Market Value given in balance sheet = $635,600

Total number of shares outstanding = 28000

Current market price = market value/shares outstanding = 635600/28000 = $22.70

2.What will it sell for tomorrow?

When a stock goes ex-dividend , it means in simple terms the dividend belongs to the seller rather than the buyer.

The present market price of the share is inclusive of dividend.

Hence to compute ex-dividend price , we have to reduce the dividend per share from its current market price.

Ex-Dividend price = $22.70-$0.80 = $21.90.

3.What will the balance sheet look like after the dividends are paid?

Cash Balance = opening balance - total dividends

Total Dividend Paid = 28000 x 0.80 = $22,400

That is $111000 - $22400 = $88,600

Equity = Ex-Dividend Price Per share X Number of shares

That is $21.90 x 28000 = $613200

Check: Total Assets = Total Liabilities

$88600 + $524600 = $613,200

Cash $ 88,600 Equity $6,13,200 Fixed assets $ 5,24,600 Total $ 6,13,200 Total $6,13,200

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