*The increase in capital in excess of par as a result of a stock dividend is equ
ID: 2739885 • Letter: #
Question
*The increase in capital in excess of par as a result of a stock dividend is equal to the shares created times (Market price – Par value).
The company’s stock is selling for $48 per share. The company had total earnings of $12,000,000 with 5,000,000 shares outstanding and earnings per share were $2.40. The firm has a P/E ratio of 20.
What adjustments would have to be made to the capital accounts for a 15 percent stock dividend? Show the new capital accounts. (Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000).)
What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.)(Do not round intermediate calculations and round your answers to 2 decimal places.)
How many shares would an investor have if he or she originally had 100? (Do not round intermediate calculations and round your answer to the nearest whole share.)
What is the investor’s total investment worth before and after the stock dividend if the P/E ratio remains constant? (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
Assume Mr. Heart, the president of Health Systems, wishes to benefit stockholders by keeping the cash dividend at a previous level of $1.10 in spite of the fact that the stockholders how have 15 percent more shares. Because the cash dividend is not reduced, the stock price is assumed to remain at $48.
What is an investor’s total investment worth after the stock dividend if he/she had 100 shares before the stock dividend?
As a final question, what is the dividend yield on this stock under the scenario described in part e?(Input your answer as a percent rounded to 2 decimal places.)
Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows:
Explanation / Answer
Step-1:
Particulars
Amount
Common stock
$ 2400,00,000.00
Capital in excess par value
$ 350,00,000.00
Retained earnings
$ 120,00,000.00
Net worth
$ 2870,00,000.00
Step-2:
Step-2:
EPS = $50,000,000 / 5,000,000
= $10
Stock price = 5,000,000
Step-3:
In the beginning purchased share value = $10
Selling stock value per share = $48
Total shares have = $48-$10
= $38 shares
Step-4:
Stock before dividend = $50,000,000
Stock after dividend = $50,000,000 * 15%
= $7,500,000
= $50,000,000 - $7,500,000
= $42,500,000
Particulars
Amount
Common stock
$ 2400,00,000.00
Capital in excess par value
$ 350,00,000.00
Retained earnings
$ 120,00,000.00
Net worth
$ 2870,00,000.00
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.