Question 1

Rocky Ground Camping Supply Inc. has 200,000 shares of stock outstanding each with a market value of $15. In addition, on the balance sheet there is common stock of $1,950,000 and retained
Earnings of $1,450,000. Suppose the ﬁrm declares a 20% stock dividend. What is the stock's new
Price per share? Assume there are no taxes or transaction costs.

Accepted Answer

Before the stock dividend, the total market value of the stock is $15 * 200,000 = $3,000,000. 
After the stock dividend, the number of shares outstanding will increase by 20%, or 40,000 shares. 
The new number of shares outstanding will be 240,000. 
The total market value of the stock remains $3,000,000, so the new price per share is $3,000,000 / 240,000 = $12.50.

Question 2

Kate's has 9,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $9 per share. The balance sheet shows $9,000 in the common stock account, $21,000 in the
Capital in excess of par account, and $40,500 in the retained earnings account. The ﬁrm just
Announced a 100 percent (large) stock dividend. By what amount will retained earnings change as a
Result of this dividend?

Accepted Answer

A 100% stock dividend means the company will issue additional shares equal to the number of shares currently outstanding. The par value of the new shares is $9,000 (9,000 shares x $1 par value), which will be transferred from retained earnings to the common stock account, reducing retained earnings by $9,000.

Question 3

Priscilla owns 500 shares of Delta stock. The company recently issued a statement that it will pay a $1.00 per share dividend this year and a $.50 per share dividend next year. Priscilla does not want
Any dividend this year but does want as much dividend income as possible next year. Her required
Return on this stock is 12 percent. Ignoring taxes, what will Priscilla's homemade dividend per share
Be next year?

Accepted Answer

Priscilla can use the homemade dividend technique to create her desired dividend income next year. To do so, she can choose to either reinvest her dividend now or receive it and invest it herself to earn the desired return of 12 percent.

If she chooses to reinvest her $1.00 dividend this year at 12 percent interest, it will grow to:
$1.00 x (1 + 0.12) = $1.12

Next year, when the company pays a dividend of $0.50 per share, Priscilla will receive a total dividend of:
$1.12 + $0.50 = $1.62

Therefore, Priscilla's homemade dividend per share next year will be $1.62, which is option D.

Question 4

Stansﬁeld, Inc. currently has 400,000 shares of stock outstanding, each with a market price of $20 and a book value of $2. If net income for the year is $295,000 and the ﬁrm's retention ratio is 60%,
What is the dividend per share on the ﬁrm's stock?

Accepted Answer

Dividend per share = Net income * Retention ratio / Number of shares outstanding= 295,000 * 0.6 / 400,000= $0.30

Question 5

Randall's, Inc. has 20,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $12 per share. The balance sheet shows $42,000 in the capital in excess of par
Account, $20,000 in the common stock account and $50,500 in the retained earnings account. The
ﬁrm just announced a 5 percent (small) stock dividend. What is the change in the balance in the
Capital in excess of par account after the dividend?

Accepted Answer

The change in the capital in excess of par account is calculated by multiplying the number of new shares issued by the difference between the market value and the par value. The firm issues 1,000 new shares (5% of 20,000). The market value is $12, and the par value is $1, so the difference is $11. Therefore, the change is 1,000 shares * $11 = $11,000.

Question 6

-Alex, Inc. is ﬁnanced 100% with equity. The ﬁrm has 100,000 shares of stock outstanding with a market price of $5 per share. Total earnings for the most recent year are $50,000. The ﬁrm has
Cash of $25,000 in excess of what is necessary to fund its positive NPV projects. The ﬁrm is
Considering using the cash to pay an extra dividend of $25,000 or, alternatively, to repurchase
$25,000 of stock. The ﬁrm has other assets worth $475,000 (market value). For each of the
Questions that follow, assume there are no transaction costs, taxes, or other market imperfections.
Assume the ﬁrm uses the $25,000 excess cash to buy back stock at $5 per share. What will be the
ﬁrm's earnings per share after the repurchase?

Accepted Answer

The answer of 
-Alex, Inc. is ﬁnanced 100% with equity....

Question 7

The Mining Co. has 110,000 shares of stock outstanding. The current market value of the ﬁrm is $5.5 million. The company has retained earnings of $1.8 million, paid in surplus of $2.2 million, and
A common stock account value of $.11 million. The company is planning a 5-for-1 stock split. What
Will the retained earnings account value be after the split?

Accepted Answer

A stock split does not affect the retained earnings account; it only changes the number of shares and the par value per share. Therefore, the retained earnings will remain at $1.8 million after the split.

Question 8

Alex, Inc. is ﬁnanced 100% with equity. The ﬁrm has 100,000 shares of stock outstanding with a market price of $5 per share. Total earnings for the most recent year are $50,000. The ﬁrm has
Cash of $25,000 in excess of what is necessary to fund its positive NPV projects. The ﬁrm is
Considering using the cash to pay an extra dividend of $25,000 or, alternatively, to repurchase
$25,000 of stock. The ﬁrm has other assets worth $475,000 (market value). For each of the
Questions that follow, assume there are no transaction costs, taxes, or other market imperfections.
Assume the ﬁrm pays the $25,000 excess cash in the form of a cash dividend. What will be the
ﬁrm's earnings per share once the dividend is paid?

Accepted Answer

The firm's earnings per share (EPS) is calculated by dividing total earnings by the number of shares outstanding. Since the dividend does not affect earnings or the number of shares, EPS remains $50,000 / 100,000 = $0.50.

Question 9

BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the retention ratio is 80%, what is the dividend per share on BDJ Inc.'s
Stock?

Accepted Answer

The dividend payout ratio is 20% (100% - 80% retention). Dividends = 20% of $155,000 = $31,000. Dividend per share = $31,000 / 31,000 shares = $1.00.

Question 10

Baersox, Inc. maintains a debt-equity ratio of .55 and follows a residual dividend policy. The company has after-tax earnings of $2,800 for the year and has capital requirements of $2,500.
What is the total amount Baersox will pay out in dividends this year?

Accepted Answer

The answer of Baersox, Inc. maintains a debt-equity ratio of...

Question 11

You own 189 shares of Hi-Tek, Inc. stock. The company has stated that it plans on issuing a dividend of $.30 per share at the end of this year and then issuing a ﬁnal liquidating dividend of $1.05 per
Share at the end of next year. Your required rate of return is 15 percent. Ignoring taxes, what is the
Value of one share of Hi-Tek stock today?

Accepted Answer

The answer of You own 189 shares of Hi-Tek, Inc....

Question 12

The Mining Co. has 110,000 shares of stock outstanding. The current market value of the ﬁrm is $5.5 million. The company has retained earnings of $1.8 million, paid in surplus of $2.2 million, and
A common stock account value of $.11 million. The company is planning a 5-for-1 stock split. What
Will the par value per share be after the split?

Accepted Answer

Before the split, the total market value of the company is $5.5 million, so the market value per share is $5.5 million / 110,000 shares = $50 per share. After the split, there will be 5 times as many shares outstanding, or 550,000 shares. Since the total market value of the company is still $5.5 million, the market value per share will be $5.5 million / 550,000 shares = $10 per share. The par value per share will be adjusted accordingly, so the new par value per share will be $10 / 5 = $2.00. However, the question asks for the par value per share after the split, not before, so we need to divide the current par value of $0.11 by 5 as well, giving us a new par value per share of $0.022, or $0.02 rounded to the nearest cent. Therefore, the answer is B.

Question 13

Jaguar, Inc. maintains a debt-equity ratio of .60 and follows a residual dividend policy. The company has after-tax earnings of $3,100 for the year and needs $3,000 for new investments. What is the
Total amount Jaguar will pay out in dividends for this year?

Accepted Answer

First, we need to calculate the amount of money that Jaguar will keep for itself after investing the $3,000 in new projects. To do this, we use the dividend formula:

Dividends = Net Income - (New Investments * (1 - Debt/Equity Ratio))

Dividends = $3,100 - ($3,000 * (1 - 0.60))
Dividends = $3,100 - $1,200
Dividends = $1,900

This means that Jaguar can pay up to $1,900 in dividends for the year. However, since they follow a residual dividend policy, they will only pay out what is left over after investing in new projects. Since they need $3,000 for new investments, they will pay out:

Dividends = $1,900 - $3,000
Dividends = -$1,100

This is a negative amount, which means that Jaguar cannot pay any dividends this year. However, if we look at the answer choices, the only option that is not negative and is also the closest to the maximum amount they could have paid out is C) $1,225. Therefore, C) $1,225 is the best choice.

Question 14

Mario's has 18,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $33 a share. The ﬁrm just announced a 5-for-3 stock split. What will the par value of the
Stock be after the split?

Accepted Answer

In a 5-for-3 stock split, the number of shares increases by a factor of 5/3, and the par value decreases by the reciprocal factor of 3/5. Thus, the new par value is $1.00 * (3/5) = $0.60.

Question 15

The Daily News maintains a debt-equity ratio of .60 and follows a residual dividend policy. The ﬁrm needs $1,300 for new investments next year. The after-tax earnings this year are $1,600. What is the
Amount that The Daily News will pay out in dividends for the year?

Accepted Answer

The answer of The Daily News maintains a debt-equity ratio...

Question 16

Ryan's Auto Parts has 200,000 shares of stock outstanding with a par value of $1 per share and a market value of $10 a share. The company has retained earnings of $86,000 and paid in surplus of
$285,000. The company just announced a 2-for-5 reverse stock split. What will the par value per
Share be after the split?

Accepted Answer

In a 2-for-5 reverse stock split, the number of shares is reduced, and the par value per share increases proportionally. The original par value is $1, and the reverse split ratio is 5/2, so the new par value is $1 * (5/2) = $2.50.

Question 17

Prezario's has 225,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the ﬁrm is $1,690,000. The company just announced a 2-for-1 stock split. By how
Much does the common stock account balance change after the split?

Accepted Answer

A stock split does not change the total par value of the common stock account. The number of shares increases, but the par value per share decreases proportionally, leaving the total par value unchanged.

Question 18

Jenkin's has 11,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $21 per share. The ﬁrm just announced a 100 percent (large) stock dividend. What is the
Market value per share after the dividend?

Accepted Answer

The answer of Jenkin's has 11,000 shares of stock outstanding...

Question 19

SesameSweet Inc. has 220,000 shares outstanding with a market price of $12 per share. On the balance sheet, common stock is $760,000, and retained earnings are $275,000. There are no
Transactions costs.
Suppose SesameSweet declares a 10% stock dividend. What is the stock's new price per share
After the dividend?

Accepted Answer

First, we need to calculate the number of new shares that will be issued due to the stock dividend:
220,000 x 0.10 = 22,000 new shares
Then, we add the new shares to the current number of shares outstanding:
220,000 + 22,000 = 242,000 shares outstanding
Next, we calculate the new common stock balance:
$760,000 / 220,000 = $3.45 per share
$3.45 x 22,000 = $75,900 increase in common stock
$760,000 + $75,900 = $835,900 new common stock balance
Then, we calculate the new retained earnings balance:
$275,000 / 220,000 = $1.25 per share
$1.25 x 22,000 = $27,500 decrease in retained earnings
$275,000 - $27,500 = $247,500 new retained earnings balance
Finally, we calculate the new price per share:
($835,900 + $247,500) / 242,000 = $4.01 per share
$12 + $4.01 = $16.01 total value per share
$16.01 / 1.1 (to account for the 10% stock dividend) = $14.55 new price per share
Therefore, the best choice is B, with an explanation provided.

Question 20

A Kinston ﬁrm has a market value equal to its book value. Currently, the ﬁrm has excess cash of $800 and other assets of $4,200. Equity is worth $5,000. The ﬁrm has 200 shares of stock
Outstanding and net income of $350. What will the new earnings per share be if the ﬁrm uses all its
Excess cash to complete a stock repurchase?

Accepted Answer

The answer of A Kinston ﬁrm has a market value...

Quiz 17: Dividends and Payout Policy

Stansﬁeld, Inc. currently has 400,000 shares of stock outstanding, each with a market price of $20 and a book value of $2. If net income for the year is $295,000 and the ﬁrm's retention ratio is 60%, What is the dividend per share on the ﬁrm's stock?

BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net income for the year is $155,000 and the retention ratio is 80%, what is the dividend per share on BDJ Inc.'s Stock?

Baersox, Inc. maintains a debt-equity ratio of .55 and follows a residual dividend policy. The company has after-tax earnings of $2,800 for the year and has capital requirements of $2,500. What is the total amount Baersox will pay out in dividends this year?

Jaguar, Inc. maintains a debt-equity ratio of .60 and follows a residual dividend policy. The company has after-tax earnings of $3,100 for the year and needs $3,000 for new investments. What is the Total amount Jaguar will pay out in dividends for this year?

Mario's has 18,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $33 a share. The ﬁrm just announced a 5-for-3 stock split. What will the par value of the Stock be after the split?

The Daily News maintains a debt-equity ratio of .60 and follows a residual dividend policy. The ﬁrm needs $1,300 for new investments next year. The after-tax earnings this year are $1,600. What is the Amount that The Daily News will pay out in dividends for the year?

Prezario's has 225,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the ﬁrm is $1,690,000. The company just announced a 2-for-1 stock split. By how Much does the common stock account balance change after the split?

Jenkin's has 11,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $21 per share. The ﬁrm just announced a 100 percent (large) stock dividend. What is the Market value per share after the dividend?