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1. Tipateena Boutiques has the following equity accounts on its balance sheet: 625,000 1,375,000 Common stock ($1.25 par, 500
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Answer #1

(A) Book Value per share = Total Common Shareholder equity / Total outstanding shares

= 11,200,000 / 500,000 = 22.4 $

Earnings per share = Earnings available to common stockholders / Total outstanding shares

= 3,000,000 / 500,000 = 6

Dividends per share:

Retention Ratio = Dividends per share / EPS = 1- Dividend payout ratio

= Dividends per share / 6 = 1 - 45%

Dividends per share = 6*0.55 = 3.3

(B) Post 3:1 stock split, number of outstanding shares will become 1,500,000

Book Value per share = 11,200,000 / 1,500,000 = 7.47

Earnings per share = 3,000,000 / 1,500,000 = 2

Dividends per share = 3.3 / 3 = 1.1

Stock price = 60/3 = 20

Total Market Value of firm shares will remain the same = 1,500,000 * 20 = 30,000,000

(C) Post 15% stock dividend, the total number of outstanding shares = 500,000 * (115%) = 650,000

Book Value per share = 11,200,000 / 650,000 = 17.23

Earnings per share = 3,000,000 / 650,000 = 4.6

Stock price = 60/1.15 = 52.17

(D) Pre - Stock Dividend

Cash dividend paid = 3.3 * 500,000 = 1,650,000

Post Stock Dividend

Cash dividend paid = 3.3/1.15 * 650,000 = 1,650,000

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