Question

The company with the common equity accounts shown here has decided on a two-for- one stock split. The firm's 67-cent-per-share cash dividend on the new (postsplit) shares represents an increase of 10 percent over last year's dividend on the presplit stock. 225,000 Common stock ($1 par value) Capital surplus Retained earnings 1,070,000 2,543,000 $3,838,000 Total owners' equity a. What is the new par value of the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What was last year's dividend per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) New par value per share а. Dividends per share last year b.

Answer 1

a). New Par Value = Old Par Value / Stock Split Ratio = $1 / (2/1) = $0.5

b). Total Dividends paid this year = Dividend per share * [Old Shares Outstanding * Stock Split Ratio]

= $0.67 * [225,000 * (2/1)] = $301,500

Total Dividends Paid this year = Total dividends last year * (1 + g)

$301,500 = Total dividends last year * (1 + 0.10)

Total dividends last year = $301,500 / 1.10 = $274,090.91

Dividend per share last year = Total dividends last year / Last year's Share Outstanding

= $274,090.91 / 225,000 = $1.22