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.AssetsLiabilities & EquityCash$100,000 Fixed assets900,000Equity$1,000,000Total $1,000,000Total$1,000,000Required:(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? The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $.50 pershare, and there are 20,000 shares of stock outstanding. The market-value balancesheet for Payout is shown in the following table.Liabilities & EquityAssets$100,000CashFixedEquity $1,000,000Total $1,000,000assets900,000Total$1,000,000Required:(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 willrepurchase stock with a market value of $10,000. What happens to the stockprice 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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Answered: The stock of Payout Corp. will go…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 17P

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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

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?

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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