A company is considering whether or not to pay a dividend to its shareholders. The capital accounts (in $ millions) for the firm are as follows: $ 12m Common stock at $5 par Capital in excess of par S 5m $23m Retained Earnings (RE) $ 40m Net worth The firm's stock is selling for $20 per share. In addition, the company had total earnings of $4.8m during the year. EPS were $2. The firm has a P/E ratio of 10. Required: a. What adjustments would have to be made to the capital accounts for a 10% stock dividend? Show the new capital accounts. (8 marks) New shares = 10%. X 4,800,000 = 480,000 Common stock Original balance = 4.800,000 New balance -(1,800,000+ 480,000) X 5 = 26, 400,000 Capital in excess of par Original balance 5,000,000 New balance = 5,000,000 [480,000 (20-5)] = 5,000,000 + 7,200,000 RE = 12, 200,000 Original balance = 23,000,000 New balance- 23,000,000 + +(480,000 x 20) = 32,600,000 Net worth = 71,200,000 4