A ﬁrm has a market value equal to its book value. Currently, the ﬁrm has excess cash of $300 and other assets of $8,700. Equity is worth $9,000. The ﬁrm has 375 shares of stock outstanding and
Net income of $800. The ﬁrm has decided to pay out all of its excess cash as a cash dividend. What
Will the earnings per share be after the dividend is paid?

Question

Quizplus · Accepted Answer

The net income remains $800, and the number of shares remains 375. Earnings per share (EPS) is calculated as net income divided by the number of shares. Thus, EPS = $800 / 375 = $2.13. The dividend payment does not affect the net income or the number of shares, so EPS remains the same.

A ﬁRm Has a Market Value Equal to Its Book