The book and market value balance sheets for the Archway Company are shown below. The firm...

 

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The book and market value balance sheets for the Archway Company are shown below. The firm has 1,000 shares outstanding. Assets Liabilities and owners' equity Book value Market Book value Market value value Cash $1,500 $1,500 Equity $2,500 $2,000 Fixed assets $3,000 $2,500 Debt $2,000 $2,000 Total $4,500 $4,000 Total $4,500 $4,000 Archway has declared a dividend of $1.00 per share. The stock goes ex-dividend tomorrow. a) What is the price of the stock today? b) What will its price be tomorrow? (Assume that there are no taxes and there is no time difference between the ex-dividend and payment dates). c) Suppose that the dividends were replaced with a repurchase of 500 shares. $2.50? $1.50? (1) What would happen to the value of the firm after repurchase if the repurchase price is (ii) What would happen to the value of the firm after repurchase if the repurchase price is (iii) What would happen to the share price in each of these two cases? The book and market value balance sheets for the Archway Company are shown below. The firm has 1,000 shares outstanding. Assets Liabilities and owners' equity Book value Market Book value Market value value Cash $1,500 $1,500 Equity $2,500 $2,000 Fixed assets $3,000 $2,500 Debt $2,000 $2,000 Total $4,500 $4,000 Total $4,500 $4,000 Archway has declared a dividend of $1.00 per share. The stock goes ex-dividend tomorrow. a) What is the price of the stock today? b) What will its price be tomorrow? (Assume that there are no taxes and there is no time difference between the ex-dividend and payment dates). c) Suppose that the dividends were replaced with a repurchase of 500 shares. $2.50? $1.50? (1) What would happen to the value of the firm after repurchase if the repurchase price is (ii) What would happen to the value of the firm after repurchase if the repurchase price is (iii) What would happen to the share price in each of these two cases?

Answer rating: 100% (QA)

a To determine the price of the stock today we need to subtract the dividend of 100 per share from the market value per share Since there are 1000 sha... View the full answer