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What will balance sheet look like after dividends are paid

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The balance sheet for Savoy Corp. is shown here in market value terms. There are 15,000 shares of stock outstanding.

Market Value Balance Sheet (€)

Cash 100,000

Debt 400,000

Other Assets 900,000

Equity 600,000

Consider the following alternatives:

Problem 1. The company has declared a cash dividend of €2.00 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?

Problem 2. Suppose that instead of a cash dividend the company has announced it is going to repurchase €30,000 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?

Problem 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: EM132830879

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