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 market value of the firm will drop by the total amount of the dividend paid, which is $5,000 (1,000 shares * $5 per share), resulting in a new market value of $85,000.

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