Reference no: EM132512039

Health Systems Inc. is considering a 10 percent stock dividend. The capital accounts are as follows:

Common stock (3,000,000 shares at $10 par)      $30,000,000

Capital in excess of par                                    20,000,000

Retained earnings                                          45,000,000

Net worth                                                       95,000,000

• The increase in capital in excess of par as a result of a stock dividend is equal to the shares created times (Market price - Par value).
• The company's stock is selling for $42 per share. The company had total earnings of $8,400,000 with 3,000,000 shares outstanding and earnings per share were $2.80. The firm has a P/E ratio of 15.

Question 1: What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) (Do not round intermediate calculations and round your answers to 2 decimal places.)