Question

The following data apply to Garber Industries, Inc. (GII): Value of operations $1,000 Short-term investments $100 Debt $300 Number of shares 100 The company plans on distributing $100 as dividend payments. What will the intrinsic per share stock price be immediately after the distribution?

a. $6.00
b. $6.50
c. $7.00
d. $7.50
e. $8.00

Answer 1

The correct option is C,$7

Step-by-step explanation:

The value of operations must be adjusted for the following before computing the intrinsic value of share after the dividend distribution.

Adjusted value of operations=current value-debt

current value is $1000

debt is $300

Adjusted value of operations=$1000-$300

Adjusted value of operation=$700

Intrinsic value of share=adjusted value of operations/number of shares

number of shares is 100

intrinsic value=$700/100

=$7

The intrinsic value is $7 per share ,hence option C is the current answer