Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years, but is currently contemplating some kind of

Ace 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 as follows:

Common stock (2,100,000 shares at $5 par) $ 10,500,000
Capital in excess of par* 3,000,000
Retained earnings 26,500,000
Net worth $ 40,000,000

*The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price Par value).

The companys stock is selling for $20 per share. The company had total earnings of $4,200,000 during the year. With 2,100,000 shares outstanding, earnings per share were $2. The firm has a P/E ratio of 10.

a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts.

Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000).

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

Note: Do not round intermediate calculations and round your answers to 2 decimal places.

c. How many shares would an investor end up with if he or she originally had 130 shares?

Note: Do not round intermediate calculations and round your answer to the nearest whole share.

d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant?

Note: Do not round intermediate calculations and round your answers to the nearest whole dollar.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Franchise Handbook A Complete Guide To All Aspects Of Buying Selling Or Investing In A Franchise

Authors: Atlantic Publishing Co

1st Edition

0910627541, 978-0910627542

More Books

Students also viewed these Finance questions

Question

Describe the use of an index.

Answered: 1 week ago