finance

In-Class Example 9_1: Payout 1

The balance sheet for Levy Corp. is shown here in market value terms. There are 14,000 shares of stock outstanding.

Market Value Balance Sheet
Cash	62,000	Equity	507,000
Fixed Assets	445,000
Total	507,000	Total	507,000

a) The company has declared $1.60 of dividend per share. The stock goes ex dividend tomorrow. Ignoring any tax effects, what is the stock selling for today? What will it sell for tomorrow? What will the balance sheet look like after the dividends are paid?

b) Suppose the company has announced it is going to repurchase $22,400 worth of stock. What effect will this transaction have on the equity of the company? How many shares will be outstanding? What will the price per share be after the repurchase? Ignoring tax effects, show how the share repurchase is effectively the same as a cash dividend.