Explain your answer d at what market price would you

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Unformatted text preview: arnings available for common stockholders of $80,000, and its stock has been selling for $22 per share. The firm intends to retain its earnings and pay a 10% stock dividend. a. How much does the firm currently earn per share? b. What proportion of the firm does Sarah Warren currently own? c. What proportion of the firm will Ms. Warren own after the stock dividend? Explain your answer. d. At what market price would you expect the stock to sell after the stock dividend? e. Discuss what effect, if any, the payment of stock dividends will have on Ms. Warren’s share of the ownership and earnings of Nutri-Foods. LG5 13–12 Stock dividend—Investor Security Data Company has outstanding 50,000 shares of common stock currently selling at $40 per share. The firm most recently had earnings available for common stockholders of $120,000, but it has decided to retain these funds and is considering either a 5% or a 10% stock dividend in lieu of a cash dividend. a. Determine the firm’s current earnings per share. b. If Sam Waller currently owns 500 shares of the firm’s stock, determine his proportion of ownership currently and under each of the proposed stock dividend plans. Explain your findings. c. Calculate and explain the market price per share under each of the stock dividend plans. d. For each of the proposed stock dividends, calculate the earnings per share after payment of the stock dividend. CHAPTER 13 Dividend Policy 585 e. What is the value of Sam Waller’s holdings under each of the plans? Explain. f. Should Mr. Waller have any preference with respect to the proposed stock dividends? Why or why not? LG6 13–13 Stock split—Firm Growth Industries’ current stockholders’ equity account is as follows: Preferred stock Common stock (600,000 shares at $3 par) Paid-in capital in excess of par Retained earnings Total stockholders’ equity $ 400,000 1,800,000 200,000 800,000 $3,200,000 a. Indicate the change, if any, expected if the firm declares a 2-for-1 stock split. b. Indicate the change, if any, expected if the firm declares a 1-for-11/2 reverse stock split. c. Indicate the change, if any, expected if the firm declares a 3-for-1 stock split. d. Indicate the change, if any, expected if the firm declares a 6-for-1 stock split. e. Indicate the change, if any, expected if the firm declares a 1-for-4 reverse stock split. LG5 LG6 13–14 Stock split versus stock dividend—Firm Mammoth Corporation is considering a 3-for-2 stock split. It currently has the stockholders’ equity position shown. The current stock price is $120 per share. The most recent period’s earnings available for common stock is included in retained earnings. Preferred stock Common stock (100,000 shares at $3 par) Paid-in capital in excess of par Retained earnings Total stockholders’ equity $ 1,000,000 300,000 1,700,000 10,000,000 $13,000,000 a. What effects on Mammoth would result from the stock split? b. What change in stock price would you expect to result from the stock split? c. What is the maximum cash dividend per share that...
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This document was uploaded on 01/19/2014.

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