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Question 5. The balance sheet for Steven Corp. is shown here in market value terms. There are 12,000 shares of stock outstanding.

please answer question 6 only.


Question 5.

The balance sheet for Steven Corp. is shown here in market value terms. There are 12,000 shares of stock outstanding.



Market Value Balance Sheet


Cash $52,900 Equity $387,900


Fixed Assets 335,000

Total $387,900 $387,900

The company has declare a dividend of $1.30 per share . The stock goes ex dividend tomorrow. ignoring any tax effect. What is the stock selling for today ? What will it sell for tomorrow ? What will the balance sheet look like after the dividend is are paid?


Question 6.

Use the previous problem, suppose Steven has announced it is to repurchase $15,600 worth of stock . What effect will this transaction have on the equity of the firm? How many shares will be outstanding? What will the price per share be after the repurchase ? Ignoring tax effects, show how the share repurchase is effectively the same as a cash dividend


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