10. The management of Oodles N Noodles Inc. is contemplating a 20% stock dividend. The company currently has cash of $300,000, fixed assets of $3.5 million, and debt of $1 million. Its net income for the most recent fiscal year was $500,000. The companys shares are currently selling for $15 per share, and it has one million shares outstanding. Assume that there are no costs associated with issuing a stock dividend. (14 marks)

a. Before issuing the stock dividend, the companys management would like to know the effect of such a stock dividend on the following:

1. The number of shares outstanding (1 mark)

2. Earnings (1 mark)
3. Market value of cash (1 mark)
4. Market value of equity (1 mark)
5. Share price (2 marks)
6. Earnings per share (EPS) (2 marks)
7. Price-earnings ratio (P/E) (2 marks)
8. Shareholders wealth (2 marks)

b. The companys management would like to hold its earnings per share within the range of 0.40.6. Given this constraint, should the company go ahead with the stock dividend? (1 mark)

c. If all that the companys shareholders care about are their wealth and the P/E ratio, should the company go ahead with the stock dividend? (1 mark)