Reference no: EM132524263

The management of Oodles N Noodles Inc. is contemplating a 20% stock dividend. The company currently has cash of $300,000, fixed assets of $3.5 million, and debt of $1 million. Its net income for the most recent fiscal year was $500,000. The company's shares are currently selling for $15 per share, and it has one million shares outstanding. Assume that there are no costs associated with issuing a stock dividend.

a. Before issuing the stock dividend, the company's management would like to know the effect of such a stock dividend on the following:

i. The number of shares outstanding

ii. Earnings

iii. Market value of cash

iv. Market value of equity

v. Share price

vi. Earnings per share (EPS)

vii. Price-earnings ratio (P/E)

viii. Shareholders' wealth

b. The company's management would like to hold its earnings per share within the range of 0.4-0.6. Given this constraint, should the company go ahead with the stock dividend?

c. If all that the acompany's shareholders care about re their wealth and the P/E ratio, should the company go ahead with the stock dividend?