Regular Dividends- The balance sheet for Levy Corp is shown here in market value terms. There are 8000 shares of stock outstanding.

Regular Dividends- The balance sheet for Levy Corp is shown here in market value terms.

There are 8000 shares of stock outstanding.

Cash                     29,000                                     Equity   203,000

Fixed Assets      174,000

Total                   203,000                                    Total    203,000

The company has declared a dividend of 1.30 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?

Flychucker Corporation is evaluating an extra dividend versus a share repurchase. In either case, $9,500 would be spent. Current earnings are $1.30 per share, and the stock currently sells for $41 per share. There are 3,400 shares outstanding.

 Ignore taxes and other imperfections in answering the first two questions.  

a.  Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth. 

b.What will be the effect on Flychucker’s EPS and PE ratio under the two different scenarios?

c. In the real world, which of these actions would you recommend? Why?