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What effect will this transaction have

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Problem - CASE - The balance sheet for Solomon Corporation is shown here in market value terms. There are 30,000 shares of stock outstanding.

Market Value Balance Sheet (€)

Cash 200,000 Debt 800,000

Other Assets 1,800,000 Equity 1,200,000

Total 2,000,000 Total 2,000,000

Required - Consider the following alternatives:

1. The company has declared a cash dividend of €4.00 per share. The stock goes ex dividend tomorrow. Ignoring any tax effects, what is the stock selling for today? What will it sell for tomorrow? What will the balance sheet look like after the dividends are paid?

2. Suppose that instead of cash dividend the company has announced it is going to repurchase €60,000 worth of stock. What effect will this transaction have on the equity of the firm? How many shares will be outstanding? What will the price per share be after the repurchase?

3. Suppose that instead of cash dividend or stock repurchase, the company has declared a 20 percent stock dividend. The stock goes ex-dividend tomorrow. What will the ex-dividend price be?

Reference no: EM133011390

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