The Beta Corporation had 1,000 shares outstanding and a market value of $90,000 prior to the declaration of a $5 per share dividend.To finance a new project they will issue equity and the end result will be that the market value of the firm:
A)drops by $1,000.
B)drops to $85,000.
C)increases by $1,000.
D)increases to $95,000.

Question

Quizplus · Accepted Answer

The dividend payment reduces the market value of the firm by $5,000 (1,000 shares x $5 per share), so the market value drops to $85,000.

The Beta Corporation Had 1,000 Shares Outstanding and a Market