Regular Dividends

The balance sheet for Ferguson Corp. is shown here in market terms. There are 12,000 shares of stock outstanding.

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?

Share Repurchase

In the previous problem, suppose Ferguson has announced it is going to repurchase $15,600 worth of stock. What effect will this transaction have on the equity of the firm? 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.