*The increase in capital in excess of par as a result of a stock dividend is equ
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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?
Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows:Explanation / Answer
Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows: Common stock (5,000,000 shares at $10 par) $ 50,000,000.00 Capital in excess of par* $ 35,000,000.00 Retained earnings $ 55,000,000.00 Net worth $ 140,000,000.00 *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. a. 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).) Change in capital account Common stock $ 57,500,000.00 Capital in excess of par $ 35,000,000.00 Retained earnings $ 47,500,000.00 $ 7,500,000.00 Net worth $ 140,000,000.00 $0 b. 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.) Particulars EPS 2.09 5750000 Stock price 41.74 We use change in number of shareholders value after number of shareholders will increase after stock dividend. c. 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.) Number of shares 115.00 Divide 48*100/New stock price as 41.74 we will get 15 more shares as compared to before. d. 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.) Particulars Total Investment Shares Market price Before stock dividend 4800 100 48 After stock dividend 4800.1 115 41.74 No difference only very high investments will get effected e. 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 $48. 0.165 1.265 Since, question is not clear we assume that it asks us if it wants to maintain some percentage and payout of ratio as before so it must pay 1.265$ per share to maintain its forecast rate. What is an investor’s total investment worth after the stock dividend if he/she had 100 shares before the stock dividend? Particulars Total Investment Shares Market price Before stock dividend 4800 100 48 After stock dividend 4800.1 115 41.74 If individaul had 100 shares before stock dividend, he will gain one cent per shares.
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