Finance2 | EssayIvy.com

Vegas Products sells marked playing cards to blackjack dealers. It has not paid a dividend

in many years but is currently contemplating some kind of dividend. The capital accounts

for the firm are:

Common stock (200,000) ……………..$5,000,000

Retained earnings ……………………..5,000,000

Net worth……………………………… 10,000,000

The company's stock is selling for $40 per share. The company had total earnings of

$400,000 during the year. With 200,000 shares outstanding indicating a P/E ratio of 20.

a. What adjustments would have to be made to the capital accounts for a 10 percent

stock dividend?

b. What adjustments would be made to EPS and the stock price? (Assume the P/E

ratio remains constant.)

c. How many shares would an investor end up with if he or she originally had 100

shares?

d. What is the investor's total investment worth before and after the stock dividend if

the P/E ratio remains constant

a. Common stock (220,000 shares at $25 par) $5500,000

**Retained earnings 4,500,000

Net worth $10,000,000

b. EPS after stock dividend = $400,000/$220,000 = $1.82

Price = P/E ratio * EPS = 20 * 1.82 = $36.40

c. 100 + (100 * 10%) = 110 shares after the stock dividend

d. Before After

100 * $40 = $4,000 110 * $36.4 = $4,004

e. In general, nothing material has taken place. Only the dividends that might have

increased.

Place new order. It's free, fast and safe

Paper type

Deadline

Page count

550 words

Total price: $ 15.00

Our customers say

Jeff Curtis

USA, Student

"I'm fully satisfied with the essay I've just received. When I read it, I felt like it was exactly what I wanted to say, but couldn’t find the necessary words. Thank you!"

Ian McGregor

UK, Student

"I don’t know what I would do without your assistance! With your help, I met my deadline just in time and the work was very professional. I will be back in several days with another assignment!"

Shannon Williams

Canada, Student

"It was the perfect experience! I enjoyed working with my writer, he delivered my work on time and followed all the guidelines about the referencing and contents."