Jensen's has a market value equal to its book value,excess cash of $500,other assets of $9,500,and equity worth $10,000.The firm has 250 shares of stock outstanding and net income of $1,400.What will be the stock price per share if the firm pays out its excess cash as a cash dividend?

Question

Quizplus · Accepted Answer

Jensen's has a market value equal to its book value, so its total assets are worth $10,000.  If the firm pays out its excess cash as a cash dividend, it will have $9,000 in assets.  The firm has 250 shares of stock outstanding, so each share will be worth $9,000/250 = $36.

Jensen's Has a Market Value Equal to Its Book Value,excess