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Good Values Incorporated is all-equity-financed. The total market value of the firm currently is $270,000, and there are 4,500 shares outstanding. Ignore taxes. The firm has declared a $6 per share dividend. The stock will go ex-dividend tomorrow. At what price will the stock sell today? At what price will the stock sell tomorrow?

a. Today: $59.33, Tomorrow: $53.33

b. Today: $60.00, Tomorrow: $54.00

c. Today: $56.00, Tomorrow: $50.00

d. Today: $54.00, Tomorrow: $48.00

1 Answer

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Final answer:

The price at which Good Values Incorporated's stock will sell today is $60.00 per share. Following the $6 dividend payment, the stock will go ex-dividend and sell at an expected price of $54.00 tomorrow.

Step-by-step explanation:

Considering Good Values Incorporated's all-equity-financed structure, the total market value of the firm is $270,000 with 4,500 shares outstanding. The declaration of a $6 per share dividend will affect the price at which the stock will sell both today and tomorrow. Currently, each share is valued at $270,000 / 4,500 shares = $60.00. Once the stock goes ex-dividend tomorrow, the share price generally drops by the amount of the dividend, which is $6 in this case. Therefore, the price at which the stock will sell today is $60.00, and the expected price at which the stock will sell tomorrow, after the dividend has been deducted from the company's market value, will be $60.00 - $6.00 = $54.00.

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