The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown in the following table. Assets Liabilities & Equity Cash $100,000 Fixed assets 900,000 Equity $1,000,000 Total $1,000,000 Total $1,000,000 Required: (a.) What price is Payout stock selling for today? (b.) What price will it sell for tomorrow? Ignore taxes. (c.) Suppose that instead of paying a dividend, Payout Corp. announces that it will repurchase stock with a market value of $10,000. What happens to the stock price when the repurchase proposal is announced?
The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown in the following table. Assets Liabilities & Equity Cash $100,000 Fixed assets 900,000 Equity $1,000,000 Total $1,000,000 Total $1,000,000 Required: (a.) What price is Payout stock selling for today? (b.) What price will it sell for tomorrow? Ignore taxes. (c.) Suppose that instead of paying a dividend, Payout Corp. announces that it will repurchase stock with a market value of $10,000. What happens to the stock price when the repurchase proposal is announced?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown in the following table.
Assets
Liabilities & Equity
Cash
$100,000
Fixed assets
900,000
Equity
$1,000,000
Total
$1,000,000
Total
$1,000,000
Required:
(a.) What price is Payout stock selling for today?
(b.) What price will it sell for tomorrow? Ignore taxes.
(c.) Suppose that instead of paying a dividend, Payout Corp. announces that it will repurchase stock with a market value of $10,000. What happens to the stock price when the repurchase proposal is announced?
(d.) Suppose that the stock is repurchased immediately after the announcement. What would be the stock price after the repurchase?
Transcribed Image Text:The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $.50 per
share, and there are 20,000 shares of stock outstanding. The market-value balance
sheet for Payout is shown in the following table.
Liabilities & Equity
Assets
$100,000
Cash
Fixed
Equity $1,000,000
Total $1,000,000
assets
900,000
Total
$1,000,000
Required:
(a.)
What price is Payout stock selling for today?
(b.)
What price will it sell for tomorrow? Ignore taxes.
(c.) Suppose that instead of paying a dividend, Payout Corp. announces that it will
repurchase stock with a market value of $10,000. What happens to the stock
price when the repurchase proposal is announced?
(d.) Suppose that the stock is repurchased immediately after the announcement.
What would be the stock price after the repurchase?
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