Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years, but is currently contemplating some kind of dividend. The capital accounts for the firm are as follows: Connon stock (2,500,000 shares at $10 par) Capital in excess of par Retained earnings Net worth "The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price - Par value). The company's stock is selling for $30 per share. The company had total earnings of $7,500,000 during the year. With 2,500,000 shares outstanding, earnings per share were $3. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000). Common stock Capital in excess of par Retained earnings Net worth EPS Stock price $ 25,000,000 5,000,000 20,000,000 $50,000,000 b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant) Note: Do not round Intermediate calculations and round your answers to 2 decimal places. S Number of shares c. How many shares would an investor end up with if he or she originally had 120 shares? Note: Do not round intermediate calculations and round your answer to the nearest whole share. Before stock dividend After stock dividend d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant? Note: Do not round Intermediate calculations and round your answers to the nearest whole dollar. Total Investment
Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years, but is currently contemplating some kind of dividend. The capital accounts for the firm are as follows: Connon stock (2,500,000 shares at $10 par) Capital in excess of par Retained earnings Net worth "The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price - Par value). The company's stock is selling for $30 per share. The company had total earnings of $7,500,000 during the year. With 2,500,000 shares outstanding, earnings per share were $3. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000). Common stock Capital in excess of par Retained earnings Net worth EPS Stock price $ 25,000,000 5,000,000 20,000,000 $50,000,000 b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant) Note: Do not round Intermediate calculations and round your answers to 2 decimal places. S Number of shares c. How many shares would an investor end up with if he or she originally had 120 shares? Note: Do not round intermediate calculations and round your answer to the nearest whole share. Before stock dividend After stock dividend d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant? Note: Do not round Intermediate calculations and round your answers to the nearest whole dollar. Total Investment
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 11P
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Please help just dont do handwritten.
Transcribed Image Text:Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years, but is currently contemplating
some kind of dividend.
The capital accounts for the firm are as follows:
Common stock (2,500,000 shares at $10 par)
Capital in excess of par
Retained earnings
Het worth
"The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price - Par
value).
The company's stock is selling for $30 per share. The company had total earnings of $7,500,000 during the year. With 2,500,000
shares outstanding, earnings per share were $3. The firm has a P/E ratio of 10.
a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts.
Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000).
Common stock
Capital in excess of par
Retained eamings
Net worth
EPS
Stock price
$ 25,000,000
5,000,000
20,000,000
$50,000,000
b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant)
Note: Do not round Intermediate calculations and round your answers to 2 decimal places.
$
Number of shares
c. How many shares would an investor end up with if he or she originally had 120 shares?
Note: Do not round intermediate calculations and round your answer to the nearest whole share.
Before stock dividend
After stock dividend
d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant?
Note: Do not round Intermediate calculations and round your answers to the nearest whole dollar.
Total Investment
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