Metromat has the following equity accounts on its balance sheet:
The current market price of Metromat's shares is $16. If the firm declares a 15% stock dividend and a $0.15 per share cash dividend, what will be the impact on contributed capital in excess of par? Assume a marginal tax rate of 40%.
A) decreases $2.56 million
B) increases $5.04 million
C) increases $5.76 million
D) does not change

Question

Metromat has the following equity accounts on its balance sheet: 
The current market price of Metromat's shares is $16. If the firm declares a 15% stock dividend and a $0.15 per share cash dividend, what will be the impact on contributed capital in excess of par? Assume a marginal tax rate of 40%.
A) decreases $2.56 million 
B) increases $5.04 million 
C) increases $5.76 million 
D) does not change

Quizplus · Accepted Answer

Solution:
Increase = 2.4(0.15)($14) = $5.040 million

Metromat Has the Following Equity Accounts on Its Balance Sheet