Questions 39 and 40 should be answered together:

Question 39

Uptown Interior design has the same market value as the book value of its balance sheet accounts. The firm has declared a dividend of $0.35 per share that will be paid in two days time. The company has 8,000 shares of stock outstanding trading in the market. The balance sheet is presented in the following table:

Balance Sheet

Cash 25,000 Equity 190,000

Fixed Assets 165,000

Total 190,000 Total 190,000

a) Ignoring taxes, what is the stock selling for today?

b) What will it sell in two days time after the ex dividend date?

c) What are the accounts affected after the dividends are paid and what will be their new balance?

Question 40

Uptown Interiors has decided to consider an alternative to cash dividend. Instead of paying a dividend, the firm will repurchase $5 200 worth of stock.

a) What effect will this transaction have on the equity of the firm?

b) How many shares were repurchased? (round your answer)

c) How many shares will be outstanding?

d) What is the new equity value?

e) What will the price per share be after the repurchase?