Question

The balance sheet for Tempest, Inc., is shown here in market value terms. There are 25,000 shares of stock outstanding.

Market Value Balance Sheet
Cash	$	175,000
Fixed assets		570,000		Equity	$	745,000
Total	$	745,000		Total	$	745,000

The company has declared a dividend of $.90 per share. The stock goes ex dividend tomorrow. Ignore any tax effects.
a.	What is the stock selling for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What will it sell for tomorrow? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c.	What will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

	Cash Fixed assets    Equity    Total Total

Answer 1

A) given in the question the market value of equity is $745000

Number of shares outstanding = 25000

Hence the stock selling price = $745000/25000 = $29.8

.

B) stock price for tomorrow = $745000 - 0.9(25000)

= $722500

= $722500/25000

= $28.9

.

C)

Asset	amount	Liability	amount
Cash	$152500	Equity	$722500
Fixed asset	$570000
Total	722500	Total	$722500

Cash = $175000 -$22500 = $152500

Equity = $745000 - $22500 =