Question

The market value balance sheet for Oracle Manufacturing is shown here. The company has declared a stock dividend of 30 percent. The stock goes ex-dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). Market Value Balance Sheet Cash $95,000 Debt $154,000 Fixed assets 190,000 Equity 731,000 Total $885,000 Total $885,000 There are 30,000 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.) Current share price Ex-dividend price per share

Answer 1

a). Current Share Price = Total Market Value of Equity / Shares Outstanding

= $731,000 / 30,000 = $24.37

b). The shares outstanding will increase by 30%.

New Shares Outstanding = 30,000 * (1 + 0.30) = 39,000

Ex-dividend share price = Total Market Value of Equity / New Shares Outstanding

= $731,000 / 39,000 = $18.74