The balance sheet for Apple Pie Corp.is shown here in market value terms.There are 5,000 shares of stock outstanding.
The company has declared a dividend of $1.80 per share.The stock goes ex-dividend tomorrow.Ignore any tax effects.What will the price of the stock be tomorrow?

Question

The balance sheet for Apple Pie Corp.is shown here in market value terms.There are 5,000 shares of stock outstanding. 
The company has declared a dividend of $1.80 per share.The stock goes ex-dividend tomorrow.Ignore any tax effects.What will the price of the stock be tomorrow?

Quizplus · Accepted Answer

To find the new stock price after the dividend is paid, we need to subtract the amount of the dividend per share from the current stock price.

Price per share before dividend = Total shareholder equity / Number of shares outstanding
Price per share before dividend = ($228,000,000 + $91,000,000) / 5,000 = $63,800

Price per share after dividend = Price per share before dividend - Dividend per share
Price per share after dividend = $63,800 - $1.80 = $39.60

Therefore, the price of the stock will be $39.60 tomorrow. The correct answer is C.

The Balance Sheet for Apple Pie Corp