After paying the stock dividend

Assignment Help Financial Management

Reference no: EM13970928

(Stock dividends) In the spring of 2014 the CFO of Placebo Pharmaceuticals, Inc. took a proposal to the firm's board of directors to distribute a noncash dividend to the firm's shareholders in the form of new shares of common stock. Specifically, the CFO proposed that the company pay 0.025 shares of stock to the holders of each share of common stock such that the holder of 1,000 shares of stock would receive an additional 25 shares of common stock.

a. If Placebo had a total net income for the year of $10,000,000 and 20,000,000 shares of common stock outstanding before the stock dividend, what are the firm's earnings per share?

b. After paying the stock dividend, what are the firm's earning per share?

c. If you owned 1,000 shares before the stock dividend, how many dollars of earnings did the firm earn on your 1,000 share investment? After the stock dividend is paid how many dollars of earnings did the firm earn on your larger share holders? What effect would you expect from the payment of the stock dividend on your total investment in the firm?

Reference no: EM13970928

Questions Cloud

Weighted average cost of capital assuming no corporate taxes : A firm has an asset base with a market value of $5.3 million. Its debt is worth $2.5 million. If $0.8 million is paid in interest annually and the shareholders expect a 16% annual return, what is the weighted average cost of capital assuming no corpo..

Focus and basis of accounting of governmental : What are the measurement focus and basis of accounting of governmental funds? What is the rationale for this basis of accounting-as opposed, for example, to either a full accrual basis or budgetary basis?

Maximizing the present value of the growth opportunities : The objective of the capital budgeting decision is to maximize the stock price of the company, and it is achieved by maximizing the present value of the growth opportunities.

Efficiency in the use of resources : Suppose you have more books than you want but would like to have more sporting goods. Explain how your well-being would be affected if a law existed preventing the trading of books for sporting goods. How would such a law affect efficiency in the ..

After paying the stock dividend : (Stock dividends) In the spring of 2014 the CFO of Placebo Pharmaceuticals, Inc. took a proposal to the firm's board of directors to distribute a noncash dividend to the firm's shareholders in the form of new shares of common stock. After paying the ..

How would you characterize your local congressperson : How would you characterize your local congressperson? As a delegate or a trustee? Should members of Congress be subject to term limits? What are the main benefits or disadvantages to unlimited incumbency?

What materials did the artist use in her works : Which event does this respond to and what statement does it make?

The real rate of interest and the inflation rate : You are considering investing money in Treasury bills and wondering what the real risk-free rate of interest is. Currently, Treasury bills are yielding 4.5% and the future inflation rate is expected to be 2.1% per year. Ignoring the cross product bet..

Changes in the operating cycle indicate the effect : Size of Accounts Receivable Essence of Skunk Fragrances, Ltd., sells 6,000 units of its perfume collection each year at a price per unit of $380. All sales are on credit with terms of 1/10, net 30. Changes in the Operating Cycle Indicate the effect t..

User Account

All Pages