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Ch17+Answers+to+assigned+problems+v7

Ch17+Answers+to+assigned+problems+v7 - CHAPTER17 DIVIDENDS...

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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
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$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:
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