Question

Stock dividend-Investor Personal Finance Problem Security Data Company has outstanding 50,000 shares of common stock currently selling at $45 per share. The firm most recently had earnings available for common stockholders of $149,000, but it has decided to retain these funds and is considering a 5% stock dividend in lieu of a cash dividend. a. Determine the firm's current earnings per share. b. If Sam Waller currently owns 600 shares of the firm's stock, determine his proportion of ownership currently and under the proposed 5% stock dividend plan. c. Calculate the market price per share under the 5% stock dividend plan. d. For the proposed 5% stock dividend plan, calculate the earnings per share after payment of the stock dividend e. What is the value of Sam's holdings under the 5% stock dividend plan? f. Should Sam have any preference with respect to the proposed stock dividend?

Answer 1

a.Earnings per share = Net income for Shareholders/Number of Shares

= 149000/50,000

= $2.98 per share

b.Proportion of ownership current = 600/50,000 = 1.2%

After stock dividend = 600*1.05/50,000*1.05 = 1.2%

c.Market price per share after stock dividend = 45/1.05

= $42.8571

d.EPS = 149000/52500

= $2.8381 per share

e.Value of holdings = 630*42.8571

= $27000

f.No, since the position will remain same