{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

This preview shows pages 1–3. Sign up to view the full content.

CHAPTER17 DIVIDENDS AND DIVIDEND POLICY 1. (LO2) The aftertax dividend is the pretax dividend times one minus the tax rate, so: Aftertax dividend = \$4.60(1 – .15) = \$3.91 The stock price should drop by the aftertax dividend amount, or: Ex-dividend price = \$80.37 – 3.91 = \$76.46 For the 1st printing of the textbook, please note the following amendment to the question printed in the textbook: 2. ‘Common stock’ should read ‘Common stock (\$1 par value)’. 2. (LO3) a. The shares outstanding increases by 10 percent, so: New shares outstanding = 30,000(1.10) = 33,000 New shares issued = 3,000 Since the par value of the new shares is \$1, the capital surplus per share is \$29. The total capital surplus is therefore: Capital surplus on new shares = 3,000(\$29) = \$87,000 Common stock (\$1 par value) \$ 33,000 Capital surplus 87,000 Retained earnings 844,180 \$964,180 b. The shares outstanding increases by 25 percent, so: New shares outstanding = 30,000(1.25) = 37,500 New shares issued = 7,500 Since the par value of the new shares is \$1, the capital surplus per share is \$29. The total capital surplus is therefore: Capital surplus on new shares = 7,500(\$29) = \$217,500 Common stock (\$1 par value) \$ 37,500 Capital surplus 217,500 Retained earnings 709,180 17-1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
\$964,180 3. (LO3) a. 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 = 30,000(4/1) = 120,000 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 = 30,000(1/5) = 6,000. 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(5/1) = \$5.00 per share. 4. (LO3) To find the new stock price, we multiply the current stock price by the ratio of old shares to new shares, so: a. \$90(3/5) = \$54.00 b. \$90(1/1.15) = \$78.26 c. \$90(1/1.425) = \$63.16 d. \$90(7/4) = \$157.50 e. To find the new shares outstanding, we multiply the current shares outstanding times the ratio of new shares to old shares, so: a: 350,000(5/3) = 583,333 b: 350,000(1.15) = 402,500 c: 350,000(1.425) = 498,750 d:
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern