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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

STOCK SPLIT After a 5-for-l stock split, Strasburg Company paid a dividend of $0 75 per new share, which represents a 9% increase over last year’s pre-split dividend. What was last year’s dividend per share?

Summary Introduction

To calculate: Last year’s dividend per share.

Stock Split:

Stock split implies an increase in the number of shares that are outstanding and decrease in the face value of share. Share capital remains the same throughout the number of shares increased after stock split.

Explanation

Calculate equivalent pre-split dividend.

Given,

Dividend per share is $0.75.

Split ratio is 5 for 1.

Formula to calculate equivalent pre-split dividend,

Equivalentpresplitdividend=Dividend×Splitratio

Substitute $0.75 for dividend per share and 51 for split ratio.

Equivalentpresplitdividend=$0.75×51=$3.75

So, equivalent pre-split dividend is $3.75.

Calculate last year’s dividend.

Given,

New equivalent dividend is $3.75.

Growth rate of dividend is 9%

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