The market value balance sheet for Outbox Manufacturing is shown here. Outbox ha

Question

The market value balance sheet for Outbox Manufacturing is shown here. Outbox has declared a stock dividend of 25 percent. The stock goes ex dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend).

There are 20,000 shares of stock outstanding. What is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What will the ex-dividend price be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The market value balance sheet for Outbox Manufacturing is shown here. Outbox has declared a stock dividend of 25 percent. The stock goes ex dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend).

Explanation / Answer

1) The stock price is the total market value of equity divided by the shares outstanding, so:

P0 = $631,000 equity / 20,000 shares

P0 = $31.55 per share

2) The shares outstanding will increase by 25 percent, so:

New shares outstanding = 20,000(1.25)

New shares outstanding = 25,000

The new stock price is the market value of equity divided by the new shares outstanding, so:

PX = $631,000 / 25,000 shares

PX = $25.24

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