Question

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 part Retained earnings $25,000,000 5,000,000 20.000.000 $50,000,000 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 53. The firm has a P/E ratio of 10 .. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts (Do not round Intermediate calculations. Input your answers in dollars, not millions (eg. $1,230,000).) Common stock Capital in excess of par (Retalhad earnings

Answer 1

A B 1 a) Common stock 2 Capital in excess of par =25000000*(1+10%) =5000000+2500000*10%*(30-10) $ 27,500,000 $ 10,000,000 $ 12,500,000 $50,000,000 Retained earnings = 20000000-2500000* 10%*30 =3/(1+10%) $ $ 2.73 27.27 =10*3/(1+10%) Net worth 5 6 b) EPS 7 Stock price 8 9 c) Number of shares 10 11 d) Before stock dividend 12 After stock dividend 132 =120*(1+10%) =3*10*120 $ $ 3,600 3,600 =+C6*10*132