CHAPTER 18
DIVIDENDS AND OTHER PAYOUTS
Solutions to OddNumbered Questions and Problems
NOTE: All endofchapter problems were solved using a spreadsheet. Many problems require
multiple steps. Due to space and readability constraints, when these intermediate steps are
included in this solutions manual, rounding may appear to have occurred. However, 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:
Exdividend price = $80 – 5.10 = $74.90
3.
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 = 10,000(4/1) = 40,000
The equity accounts are unchanged except that 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.
The equity accounts are unchanged except that 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.
5.
The stock price is the total market value of equity divided by the shares outstanding, so:
P
0
= $175,000 equity/5,000 shares = $35.00 per share
Ignoring tax effects, the stock price will drop by the amount of the dividend, so:
P
X
= $35.00 – 1.50 = $33.50
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The total dividends paid will be:
$1.50 per share(5,000 shares) = $7,500
The equity and cash accounts will both decline by $7,500.
7.
The stock price is the total market value of equity divided by the shares outstanding, so:
P
0
= $360,000 equity/15,000 shares = $24 per share
The shares outstanding will increase by 25 percent, so:
New shares outstanding = 15,000(1.25) = 18,750
The new stock price is the market value of equity divided by the new shares outstanding, so:
P
X
= $360,000/18,750 shares = $19.20
9.
The only equity account that will be affected is the par value of the stock. The par value will
change by the ratio of old shares to new shares, so:
New par value = $1(1/5) = $0.20 per share.
The total dividends paid this year will be the dividend amount times the number of shares
outstanding. The company had 350,000 shares outstanding before the split. We must
remember to adjust the shares outstanding for the stock split, so:
Total dividends paid this year = $0.70(350,000 shares)(5/1 split) = $1,225,000
The dividends increased by 10 percent, so the total dividends paid last year were:
Last year’s dividends = $1,225,000/1.10 = $1,113,636.36
And to find the dividends per share, we simply divide this amount by the shares outstanding
last year. Doing so, we get:
Dividends per share last year = $1,113,636.36/350,000 shares = $3.18
11.
a.
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 Fall '09
 Halstead
 Dividend

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