The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $1 per share,...

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The stock of Payout Corp. will go ex-dividend tomorrow. Thedividend will be $1 per share, and there are 10,000 shares of stockoutstanding. The market-value balance sheet for Payout is shownbelow.

Assets Liabilities and Equity
Cash $200,000      Equity $1,000,000
Fixed assets 800,000

Suppose that Payout changes its mind and decides to issue a 1%stock dividend instead of either issuing the cash dividend orrepurchasing 1% of the outstanding stock. How would this actionaffect a shareholder who owns 900 shares of stock? (Roundyour answers to the nearest dollar.)
  Total value of the position $
Compare the effects of the repurchase to the effects of thecash dividend.
  The value of the position is (Click to select)lowerthanhigher thanthe same as under the cash dividend.
Compare the effects of the repurchase to the effects ofrepurchasing 1% of the outstanding stock.
  The value of the position is (Click to select)thesame aslower thanhigher than under the repurchase.

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4.2 Ratings (817 Votes)

1 Shareholder holding 900 shares would have got 900 as dividend if cash dividend is given However the market value of each stocks would also fall by 1 or the overall market value will fall by the dividend paid ie 10000 The current market value per share is Total Equitynumber of shares outstanding 100000010000 100 This becomes 99 after dividend is paid Hence the value received and balance share value for the shareholder 900 cash dividend received 99 900 value of 900 See Answer

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The stock of Payout Corp. will go ex-dividend tomorrow. Thedividend will be $1 per share, and there are 10,000 shares of stockoutstanding. The market-value balance sheet for Payout is shownbelow. AssetsLiabilities and EquityCash$200,000 Equity$1,000,000 Fixed assets800,000 Suppose that Payout changes its mind and decides to issue a 1%stock dividend instead of either issuing the cash dividend orrepurchasing 1% of the outstanding stock. How would this actionaffect a shareholder who owns 900 shares of stock? (Roundyour answers to the nearest dollar.) Total value of the position$ Compare the effects of the repurchase to the effects of thecash dividend. The value of the position is (Click to select)lowerthanhigher thanthe same as under the cash dividend.Compare the effects of the repurchase to the effects ofrepurchasing 1% of the outstanding stock. The value of the position is (Click to select)thesame aslower thanhigher than under the repurchase.

Assets		Liabilities and Equity
Cash	$200,000	Equity	$1,000,000
Fixed assets	800,000