The following data apply to Garber Industries,Inc.(GII): $$\begin{array} { l r }
\text { Value of operations } & \$ 1,000 \
\text { Short-term investments } & \$ 100 \
\text { Debt } & \$ 300 \
\text { Number of shares } & 100
\end{array}$$ The company plans on distributing $50 million as dividend payments.What will the intrinsic per share stock price be immediately after the distribution?
A)$6.32
B)$6.65
C)$7.00
D)$7.35
E)$7.72

Question

The following data apply to Garber Industries,Inc.(GII): $$\begin{array} { l r } 
\text { Value of operations } & \$ 1,000 \
\text { Short-term investments } & \$ 100 \
\text { Debt } & \$ 300 \
\text { Number of shares } & 100
\end{array}$$ The company plans on distributing $50 million as dividend payments.What will the intrinsic per share stock price be immediately after the distribution?
A)$6.32
B)$6.65
C)$7.00
D)$7.35
E)$7.72

Quizplus · Accepted Answer

First, we need to calculate the total value of the company before the distribution:

Value of operations + Short-term investments - Debt = $1,000 + $100 - $300 = $800 million

Then, we can calculate the value of the company after the distribution:

$800 million - $50 million = $750 million

Finally, we can calculate the intrinsic per share stock price:

$750 million / 100 shares = $7.50 per share

However, the question asks for the price immediately after the distribution, so we need to subtract the dividend payment from the intrinsic value:

$7.50 per share - $50 million / 100 shares = $7 per share

Therefore, the correct answer is C) $7.00.

The Following Data Apply to Garber Industries,Inc The Company Plans on Distributing $50 Million as Dividend Payments