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The balance sheet for the Firefox Corp
The balance sheet for the Firefox Corp. is shown here in market value terms. There are 9,600 shares of stock outstanding.
| Market Value Balance Sheet | ||||
| Cash | $27,000 | Equity | $151,680 | |
| Fixed Assets | $124,680 | |||
| Total | $151,680 | Total | $151,680 |
The company has declared a dividend of $3.16 per share. The stock goes ex-dividend tomorrow. Ignoring any tax effects, what is the stock selling for today? What will it sell for tomorrow? After the dividend, what will be the value of shares and of cash for an investor with 90 shares? Enter your answers rounded to 2 DECIMAL PLACES.
1. What is the stock selling for today?
Correct response: 15.8±0.01
What will the stock sell for tomorrow?
Correct response: 12.64±0.01
What will be the value of the investor's shares after the stock dividend?
Correct response: 1,137.6±0.01
What will be the value of the investor's cash after the dividend?
Correct response: 284.4±0.01
Click "Verify" to proceed to the next part of the question.
2. Suppose that Firefox Corp. has announced it is going to repurchase stock instead of paying out dividends. What effect will the repurchase have on an investor who currently holds 90 shares and sells 18 of those shares back to the company in the repurchase at the market price per share of $15.8 (i.e., what are the values of the investor's shares and cash)? Enter your answers rounded to 2 DECIMAL PLACES.
What will be the value of the investor's shares after the share repurchase?
Correct response: 1,137.6±0.01
What will be the value of the investor's cash after the share repurchase?
Correct response: 284.4±0.01
Click "Verify" to proceed to the next part of the question.
3. Suppose the company changes its mind and decides to issue a 19% stock dividend instead of issuing a cash dividend or a repurchase. How would this action affect a shareholder who owns 90 shares of the stock? Enter your answers rounded to 2 DECIMAL PLACES.
How many shares will the firm have after the stock dividend?
What will be the price per share after the stock dividend?
What will be the value of the investor's shares after the stock dividend?
What will be the value of the investor's cash after the stock dividend?
PLZ answer no. 3. Thank you!
Expert Solution
Answar to 3 as asked
(i) Number shares will the firm have after the stock dividend
1. Existing outstanding stock =9,600 shares
2. Add(+) Stock dividend [9,600*19%] = 1824 shares
Total number of shares of firm after stock dividend[1+2] = 11,424 shares
(ii) The price per share after the stock dividend
Price par share = Equity value/No. of shares after stock divided
= 151,680/11,424
=13.28
(iii) The value of the investor's shares after the stock dividend
Value = Number of shares after stock divided*price par share after stock divided
No of shares= 90+90*19%
=107.1 or 107
Value = 107*13.28
=1,420.96
(iv) The value of the investor's cash after the stock dividend?
Since stock dividend does not involve any cash outflow. The value of investor's cash will be zero.
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