Question 1

LaDoris' Boutique has 4,500 shares of stock outstanding at a price per share of $20.The firm has decided to repurchase 600 of those shares in the open market.What will the price per share be after the share repurchase is completed? Ignore taxes and market imperfections.

Accepted Answer

The share repurchase will not affect the market price of the stock.

Question 2

Pluto United has 18,000 shares of stock outstanding at a price per share of $38.How many shares will be outstanding if the firm does a 5-for-4 stock split?

Accepted Answer

Number of shares after the split = 18,000 × (5/4) = 22,500.

Question 3

John's has common stock outstanding at a price of $27 a share.The total market value of the equity is $435,000.How many shares of stock will be outstanding if the firm does a 2-for-5 reverse stock split?

Accepted Answer

Number of shares outstanding = ($435,000/$27)(2/5) = 6,444 shares.

Question 4

Essary Brothers has 39,000 shares of stock outstanding at a price per share of $59.How many shares will be outstanding if the firm does a 3-for-2 stock split?

Accepted Answer

Number of shares after the split = 39,000 × (3/2) = 58,500.

Question 5

Heidi owns 400 shares of Boyd Enterprises stock,which is valued at $17 a share.Boyd Enterprises just declared a 10 percent stock dividend.How many shares will Heidi own and what will the price per share be after the dividend?

Accepted Answer

Number of shares owned = 400 × 1.1 = 440; Price per share = $17 × (1/1.10) = $15.45.

Question 6

Soul Foods recently liquidated its fast-food division.That unit represented 25 percent of the firm's overall market value.Prior to the liquidation,the firm's stock was selling for $40 a share,the annual dividend was steady at $1.30 per share,and there were 16,000 shares outstanding.The firm is preparing to distribute the entire liquidation proceeds to shareholders.How much will the liquidating dividend be per share?

Accepted Answer

Liquidating dividend per share = $40 × 0.25 = $10.00.

Question 7

Innovative Technologies has 50,000 shares of stock outstanding at a market price of $8 a share.Which one of the following stock splits should the firm declare if it wants to increase the stock price to exactly $20 a share? Ignore any taxes or market imperfections.

Accepted Answer

Price ratio = $20/$8 = 5/2. The firm needs to declare a 2-for-5 reverse stock split.

Question 8

Haywood and More have a market value balance sheet as shown below.The firm currently has 5,000 shares of stock outstanding at a market price per share of $35.40.Net income is $9,500.  The firm has decided to spend $8,000 and pay an extra cash dividend.What will the firm's PE ratio be after this dividend is paid,all else held constant? Ignore taxes.

Accepted Answer

Earnings per share = $9,500/5,000 = $1.90; PE ratio = $35.40/$1.90 = 18.63.

Question 9

Botanical Gardens Nursery has 6,800 shares of stock outstanding at a market price of $21 a share.The earnings per share are $1.54.The firm has total assets of $315,000 and total liabilities of $186,000.Today,the firm is paying an annual cash dividend of $0.82 a share.Ignore taxes.What will the earnings per share be after the dividend is paid?

Accepted Answer

The cash dividend will not affect the earnings per share.

Question 10

Mary's Baked Goods has 20,000 shares of stock outstanding at a market price of $25.00 per share.What will the price per share be after the firm declares a 6 percent stock dividend? Ignore taxes and market imperfections.

Accepted Answer

Stock price = $25.00/1.06 = $23.58.

Question 11

Tom and Jerri currently own 300 shares of Alpha stock.Each share is currently worth $36.What will Tom and Jerri's investment in Alpha be worth if the company declares a 4-for-3 stock dividend?

Accepted Answer

Value = [300 × (4/3)] × [$36 × (3/4)] = $10,800.

Question 12

Lay's Meat Market has 8,000 shares of stock outstanding at a price per share of $13.What will the price per share be if the firm declares a 3-for-5 reverse stock split?

Accepted Answer

Price per share = $13 × (5/3) = $21.67.

Question 13

Cookies and Cream has 9,000 shares of stock outstanding at a market price of $14.65 per share.What will the price per share be after the firm declares a 12 percent stock dividend? Ignore taxes and market imperfections.

Accepted Answer

Stock price = $14.65/1.12 = $13.08.

Question 14

International Traders has common stock outstanding at a market price of $53 per share.The total market value of the firm is $6,603,800.The firm plans on liquidating one of its divisions for $550,000 in cash and distributing the proceeds to the shareholders in the form of a liquidating dividend.What will be the amount per share of that dividend?

Accepted Answer

Number of shares outstanding = $6,603,800/$53 = 124,600 shares; Liquidating dividend per share = $5,550,000/124,600 shares = $4.414.

Question 15

Green Thumb Nursery has 6,000 shares of stock outstanding at a market price of $20 a share.The earnings per share are $1.62.The firm has total assets of $315,000 and total liabilities of $186,000.Today,the firm is repurchasing $4,800 worth of stock.Ignore taxes.What will the earnings per share be after the stock repurchase?

Accepted Answer

Number of shares outstanding = 6,000 - ($4,800/$20) = 5,760 shares; Earnings per share = ($1.62 × 6,000)/5,760 = $1.688.

Question 16

Lester's has a market value balance sheet as shown below.The firm currently has 7,500 shares of stock outstanding at a price per share of $40.Net income is $9,500.  The firm has decided to repurchase $20,000 worth of its outstanding stock.What will the firm's PE ratio be after this repurchase,all else held constant?

Accepted Answer

Number of outstanding shares = 7,500 - ($20,000/$40) = 7,000 shares; Earnings per share = $9,500/7,000 = $1.35714; PE ratio = $40/$1.357143 = 29.47.

Question 17

James Fabricators just liquidated its poorest performing division and realized net proceeds from the transaction of $2.2 million.The firm has 200,000 shares of stock outstanding at a market price of $62 a share.Which one of the following is the best estimate of the stock's post-dividend price per share if the firm distributes the entire liquidation proceeds in the form of a liquidating dividend? Ignore taxes and market imperfections.

Accepted Answer

Post-dividend price per share = $62 - ($2.2m/200,000) = $51.00.

Question 18

Rochester,Inc.has 7,500 shares of stock outstanding at a market price of $42 each and earnings per share of $1.90.The firm has decided to repurchase $63,000 worth of stock.What will the PE ratio be after the repurchase,all else held constant?

Accepted Answer

Number of shares outstanding = 7,500 - ($63,000/$42) = 6,000 shares; Earnings per share = ($1.90 × 7,500)/6,000 = $2.38.

Question 19

Taylor's,Inc.stock has plummeted in value and is currently priced at $4 a share.The exchange on which the stock trades requires that the minimum stock price be $10 a share.Taylor's has decided to do a reverse stock split to avoid delisting.However,when it does this,the firm wants the stock price increased to at least twice the minimum exchange required price.Which one of the following stock split ratios is most appropriate for this situation?

Accepted Answer

Minimum reverse split ratio = ($10 × 2)/$4 = 5. The firm needs to declare a 1-for-5 reverse stock split.

Question 20

Doris' Boutique has 4,000 shares of stock outstanding at a price per share of $15.What will the price per share be if the firm pays a $1.30 per share dividend? Ignore taxes and market imperfections.

Accepted Answer

Ex-dividend price = $15 - $1.30 = $13.70.

Quiz 14: Dividends and Dividend Policy