Question

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Stock dividend Investor Personal Finance Problem Security Data Company has outstanding 60,000 shares of common stock currently selling at $36 per share. The firm most recently had earnings available for common stockholders of $106,000, but it has decided to retain these funds and is considering a 20% stock dividend in lieu of a cash dividend. a. Determine the firm's current earnings per share. b. If Sam Waller currently owns 500 shares of the firm's stock, determine his proportion of ownership currently and under the proposed 20% stock dividend plan. C. Calculate the market price per share under the 20% stock dividend plan. d. For the proposed 20% 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 20% stock dividend plan? f. Should Sam have any preference with respect to the proposed stock dividend?

Answer 1

a) Earnings per share = Earnings / No of common stockholders = 106,000 /60,000 = 1.767

b) Proportion of ownership = 500 /60,000 = 0.83%

Proposed - 0.83%

c) Current market cap = 36* 60,000 = 2,160,000

Market price after stock dividend plan = 2,160,000 / ( 60,000 *120% ) = $30 per share

d) EPS after stock dividend = 106,000 / (60,000 *120%) = 1.472

e) Stock holding = 500 * 120% = 600

Value = 600 * $30 = 18,000

f) No.