Question

Southern Foods recently liquidated its fast food division. That unit represented 20 percent of the firm's overall market value. Prior to the liquidation, the firm's stock was selling for $43 a share, the annual dividend was steady at $1.20 per share, and there were 16,000 shares outstanding. The firm is preparing to distribute the entire liquidation proceeds to shareholders. How much will the liquidating dividend be per share

Answer 1

$ 8.6 dividend per share

Step-by-step explanation:

Data provided:

worth of food division = 20% of the firm's market value

Cost of firm's stock = $ 43 per share

annual dividend = $ 1.20 per share

Number of outstanding shares = 16,000

thus,

the market value of the firm = outstanding shares × Cost of firm's stock

or

the market value of the firm = 16,000 × $ 43 = $ 688,000

Therefore,

the worth of the fast food division = 0.20 × $ 688,000 = $ 137,600

Hence,

the dividend per share is

= (Worth of the fast food division) / (shares outstanding)

or

= $ 137,600 / 16,000 = $ 8.6 dividend per share