Question 1

Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of financial position shows £7,000 in the ordinary equity account,£58,000 in the additional paid in capital account and £32,500 in the retained earnings account.The firm just announced a 50% (large)stock dividend.What is the value of the ordinary equity account after the dividend?

Accepted Answer

The stock dividend is 50%, so the number of outstanding shares will increase by 50% of 7,000, which is 3,500. Therefore, the new number of shares outstanding is 10,500 (7,000 + 3,500).

The par value of each share remains the same at £1.00. The new total par value is 10,500 x £1.00 = £10,500.

The additional paid in capital account will not change because a stock dividend does not involve any new cash being injected into the company. The balance remains at £58,000.

The retained earnings account will decrease by the amount of the stock dividend. In this case, the stock dividend is 50%, so the retained earnings account will decrease by 50% of the current balance, which is £32,500 x 50% = £16,250. The new balance in retained earnings is £32,500 - £16,250 = £16,250.

Therefore, the new value of the ordinary equity account is the sum of the par value and retained earnings, which is £10,500 + £16,250 = £26,750.

However, it is important to note that the market value of the shares after the stock dividend may not be exactly £12 per share anymore, as the increase in the number of shares outstanding could affect supply and demand for the stock.

Question 2

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 5-for-3 stock split.How many shares will be outstanding after the split?

Accepted Answer

A 5-for-3 stock split means the number of shares outstanding will increase by 5/3 times. Therefore, the new number of shares outstanding will be:

125,000 x 5/3 = 208,333 shares.

So, the best choice is E.

Question 3

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 7-for-3 stock split.What will the market price per share be after the split?

Accepted Answer

A 7-for-3 stock split means that for every 3 shares held, shareholders will receive 7 new shares. Thus, the total number of shares outstanding will increase by a factor of 7/3, or 2.33. 
After the stock split, the number of shares outstanding will be:
125,000 x 2.33 = 291,250 shares
Since the total value of the company hasn't changed, the market capitalization should be the same before and after the split. 
Market capitalization before the split = 125,000 x £93 = £11,625,000
Market capitalization after the split = 291,250 x P 
where P is the new market price per share.
Since the market cap is the same, we can equate the two expressions:
125,000 x £93 = 291,250 x P
Solving for P, we get:
P = (125,000 x £93) / 291,250 = £39.86
Therefore, the market price per share after the split will be £39.86.

Question 4

The Retail Outlet has 6,000 shares outstanding with a par value of £1.00 per share.The current market value of the firm is £420,000.The statement of financial position shows the additional paid in capital account value of £136,000 and retained earnings of £234,000.The company just announced a 2-for-1 stock split.What will the market price per share be after the split?

Accepted Answer

After a 2-for-1 stock split, the number of shares doubles to 12,000. The market value remains £420,000, so the new price per share is £420,000 / 12,000 = £35.

Question 5

Edie's Health and Beauty Supply has 125,000 shares outstanding with a par value of £1 per share and a market value of £5 a share.The company has retained earnings of £76,500 and additional paid in capital of £340,000.The company just announced a 1-for-5 reverse stock split.What will the par value per share be after the split?

Accepted Answer

In a 1-for-5 reverse stock split, every 5 shares are combined into 1 share. The par value per share will increase by a factor of 5, so the new par value will be £1 * 5 = £5.00.

Question 6

It has been shown that in the absence of taxes and other market imperfections firm value will be unaffected by dividend policy.Explain the logic behind this conclusion.Next,describe three real-world factors that may cause one dividend policy to be preferable to another.

Accepted Answer

The answer of It has been shown that in the...

Question 7

The Retail Outlet has 6,000 shares outstanding with a par value of £1.00 per share.The current market value of the firm is £420,000.The statement of financial position shows the additional paid in capital account value of £136,000 and retained earnings of £234,000.The company just announced a 2-for-1 stock split.What will the ordinary equity account balance be after the split?

Accepted Answer

Before the split, the total equity of the company was:
(6,000 shares x £1 par value per share) + £136,000 additional paid in capital + £234,000 retained earnings = £376,000
After the 2-for-1 stock split, the number of shares outstanding will become twice the previous amount, so the total equity remains the same:
(12,000 shares x £0.50 par value per share) + £136,000 additional paid in capital + £234,000 retained earnings = £606,000
Therefore, the ordinary equity account balance after the split will be £6,000.

Question 8

The ordinary equity of Margot is selling for £56 a share.The par value per share is £1.Currently,the firm has a total market value of £89,600.How many shares will be outstanding if the firm does a 2-for-1 stock split?

Accepted Answer

Before the split, the number of shares is £89,600 / £56 = 1,600 shares. After a 2-for-1 stock split, the number of shares doubles, resulting in 3,200 shares.

Question 9

Edie's Health and Beauty Supply has 125,000 shares outstanding with a par value of £1 per share and a market value of £5 a share.The company has retained earnings of £76,500 and additional paid in capital of £340,000.The company just announced a 1-for-5 reverse stock split.What will the market value per share be after the split?

Accepted Answer

The answer of Edie's Health and Beauty Supply has 125,000...

Question 10

Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of financial position shows £7,000 in the ordinary equity account,£58,000 in the additional paid in capital account,and £32,500 in the retained earnings account.The firm just announced a 50% (large)stock dividend.What is the market value per share after the dividend?

Accepted Answer

The answer of Bruno's has 7,000 shares outstanding with a...

Question 11

The Retail Outlet has 6,000 shares outstanding with a par value of £1.00 per share.The current market value of the firm is £420,000.The statement of financial position shows the additional paid in capital account value of £136,000 and retained earnings of £234,000.The company just announced a 2-for-1 stock split.What will the retained earnings account balance be after the split?

Accepted Answer

A stock split does not affect the retained earnings account balance. It only increases the number of shares and adjusts the par value per share.

Question 12

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of financial position shows £15,000 in the ordinary equity account,£315,000 in the additional paid in capital account,and £189,000 in the retained earnings account.The firm just announced a 3-for-2 stock split.How many shares will be outstanding after the split?

Accepted Answer

A 3-for-2 stock split means that for every 2 shares owned by a shareholder, they will receive an additional share.

Initially, Robinson's had 15,000 shares outstanding. After the split, each shareholder will have 3/2 the number of shares they previously owned.

So, the new number of outstanding shares will be:
15,000 * (3/2) = 22,500

Therefore, the answer is D) 22,500 shares.

Question 13

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of financial position shows £15,000 in the ordinary equity account,£315,000 in the additional paid in capital account,and £189,000 in the retained earnings account.The firm just announced a 3-for-2 stock split.What will the value of the ordinary equity account be after the split?

Accepted Answer

A 3-for-2 stock split means that each shareholder will receive 1.5 shares for every one share they currently own. Therefore, the number of shares outstanding will increase from 15,000 to 22,500 (15,000 x 1.5). 
However, the par value of each share will be reduced to £0.67 (1/1.5), and the market price will also be adjusted accordingly. 
The total value of the shares outstanding will remain the same, as it is based on the market price. 
After the split, the ordinary equity account will still represent the par value of the shares outstanding, which will now be £10,125 (15,000 x £0.67). Therefore, the value of the ordinary equity account will be £15,000, the same as before the split.

Question 14

Schaeffer Shippers announced that on May 1,2004,that it will pay a dividend of £5.00 per share on June 15 to all holders on record as of May 31st.The firm's share price is currently at £70 per share.Assume that all investors are in the 33% tax bracket.Given that the ex-dividend date is May 29,what should happen to Schaeffer's share price on May 29?

Accepted Answer

The answer of Schaeffer Shippers announced that on May 1,2004,that...

Question 15

Bob's Auto Group has 25,000 shares outstanding at a market price of £4.50 a share.What will the market price per share be if the company does a 1-for-5 reverse stock split?

Accepted Answer

The answer of Bob's Auto Group has 25,000 shares outstanding...

Question 16

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of financial position shows £15,000 in the ordinary equity account,£315,000 in the additional paid in capital account,and £189,000 in the retained earnings account.The firm just announced a 3-for-2 stock split.What will the market price per share be after the split?

Accepted Answer

After the 3-for-2 stock split, the total number of outstanding shares will be increased by 50% (half of the current outstanding shares). 
New number of shares = 15,000 x 1.5 = 22,500

However, the total equity (par value + additional paid in capital + retained earnings) will remain the same.

New par value per share = 1/1.5 = £0.67 
New equity per share = (15,000 + 315,000 + 189,000)/22,500 = £18.40

Therefore, the new market price per share will be the old market price (£36) divided by the 1.5 stock split ratio: 
New market price per share = £36/1.5 = £24

Thus, the correct answer is B.

Question 17

Edie's Health and Beauty Supply has 125,000 shares outstanding with a par value of £1 per share and a market value of £5 a share.The company has retained earnings of £76,500 and additional paid in capital of £340,000.The company just announced a 1-for-5 reverse stock split.How many shares will be outstanding after the split?

Accepted Answer

A reverse stock split reduces the number of outstanding shares but increases its value. In this case, a 1-for-5 reverse stock split means that for every five shares owned, the shareholder will receive one share. Therefore, the total number of outstanding shares will be reduced by a factor of five. 125,000/5 = 25,000 shares will be outstanding after the split.

Question 18

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of financial position shows £15,000 in the ordinary equity account,£315,000 in the additional paid in capital account,and £189,000 in the retained earnings account.The firm just announced a 3-for-2 stock split.What will the paid in surplus account value be after the split?

Accepted Answer

A stock split does not affect the total value of the paid-in surplus account. Therefore, the paid-in surplus account value remains at £315,000 after the split.

Quiz 18: Dividend and Other Payouts

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 5-for-3 stock split.How many shares will be outstanding after the split?

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 7-for-3 stock split.What will the market price per share be after the split?

It has been shown that in the absence of taxes and other market imperfections firm value will be unaffected by dividend policy.Explain the logic behind this conclusion.Next,describe three real-world factors that may cause one dividend policy to be preferable to another.

The ordinary equity of Margot is selling for £56 a share.The par value per share is £1.Currently,the firm has a total market value of £89,600.How many shares will be outstanding if the firm does a 2-for-1 stock split?

Bob's Auto Group has 25,000 shares outstanding at a market price of £4.50 a share.What will the market price per share be if the company does a 1-for-5 reverse stock split?