Security Data Company has outstanding 30,000 shares of common stock currently se

Question

Security Data Company has outstanding 30,000 shares of common stock currently selling at $41 per share. The firm most recently had earnings available for common stockholders of $100,000, but it has decided to retain these funds and is considering a 10% stock dividend in lieu of a cash dividend.

a. Determine the firm's current earnings per share.

b. If Sam Waller currently owns 700 shares of the firm's stock, determine his proportion of ownership currently and under the proposed 10% stock dividend plan.

c. Calculate the market price per share under the 10% stock dividend plan.

d. For the proposed 10% stock dividend plan, calculate the earnings per share after payment of the stock dividend.

e. What is the value of Sam's holdings under the 10% stock dividend plan?

f. Should Sam have any preference with respect to the proposed stock dividend? Why or why not?

I already calculated the answers for a. ($3.33) and b. (2.33%). I need help with c, d e, f. thank you!

Explanation / Answer

a. The firm's current earnings per share = $ 100,000 / 30,000 = $ 3.33 per share

b. Sam Waller's current ownership = 700 / 30,000 x 100 = 2.33%, and ownership under the 10% stock dividend plan = 770 / 33,000 x 100 = 2.33%

c. Market price per share under the 10% stock dividend plan = $ (41 x 30,000) / 33,000 = $ 37.27

d. Earnings per share after distribution of stock dividend = $100,000 / 33,000 = $ 3.03

e. Value of Sam's holding under the 10% stock dividend plan = 770 x $ 37.27 = $ 28,697.90 or $ 28,700 approximately ( Same as before, since the value of the company has not changed, i.e 700 x $ 41 )

f. Yes, as a shareholder of the company, Sam should have a preference with respect to the proposed stock dividend.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.