Ch17+Answers+to+assigned+problems+v6

Ch17+Answers+to+assigned+problems+v6 - CHAPTER 17 DIVIDENDS...

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Unformatted text preview: CHAPTER 17 DIVIDENDS AND DIVIDEND POLICY Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. The final answer for each problem is found without rounding during any step in the problem. Basic 1. The aftertax dividend is the pretax dividend times one minus the tax rate, so: Aftertax dividend = $6.00(1 – .15) = $5.10 The stock price should drop by the aftertax dividend amount, or: Ex-dividend price = $80 – 5.10 = $74.90 2. a. The shares outstanding increases by 10 percent, so: New shares outstanding = 10,000(1.10) = 11,000 New shares issued = 1,000 Since the par value of the new shares is $1, the capital surplus per share is $24. The total capital surplus is therefore: Capital surplus on new shares = 1,000($24) = $24,000 Common stock ($1 par value) $ 11,000 Capital surplus 204,000 Retained earnings 561,500 $776,500 b. The shares outstanding increases by 25 percent, so: New shares outstanding = 10,000(1.25) = 12,500 New shares issued = 2,500 Since the par value of the new shares is $1, the capital surplus per share is $24. The total capital surplus is therefore: Capital surplus on new shares = 2,500($24) = $60,000 Common stock ($1 par value) $ 12,500 Capital surplus 240,000 Retained earnings 524,000 $776,500 3. a. To find the new shares outstanding, we multiply the current shares outstanding times the ratio of new shares to old shares, so: 143 New shares outstanding = 10,000(4/1) = 40,000 The equity accounts are unchanged except the par value of the stock is changed by the ratio of new shares to old shares, so the new par value is: New par value = $1(1/4) = $0.25 per share. b. To find the new shares outstanding, we multiply the current shares outstanding times the ratio of new shares to old shares, so: New shares outstanding = 10,000(1/5) = 2,000....
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This note was uploaded on 12/12/2010 for the course FNCE FNCE 3P93 taught by Professor Nd during the Fall '10 term at Brock University.

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Ch17+Answers+to+assigned+problems+v6 - CHAPTER 17 DIVIDENDS...

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