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Acme Corporation consists of 250 grocery stores throughout the Midwest. At the beginning of 2010 its statement of net worth showed the following...

Acme Corporation consists of 250 grocery stores throughout the Midwest. At the
beginning of 2010 its statement of net worth showed the following information:
Common Stock ($2 par) $800,000; Capital paid in excess of par $1,400,000 and retained
earnings $500,000. During the year, net income equaled $160,000. Management was
undecided on what to do with the income. Acme paid an annual dividend of $.25 per
share last year and the stock price is currently $14.50. Acme has a 6% growth rate in
earnings and dividends, and is in the 40% tax bracket.
a) What return on investment would Acme have to earn in order to justify retaining
2010's earnings? Use the formula:
b) What changes would occur in stockholder's equity if a $.15 cash dividend was paid? If
a 5% stock dividend was given and no cash dividend was paid?
c) What would EPS be before and after the stock dividend?

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