Case 5

Medany co. has a stock with a face value equal $30, the number of stocks is 400,000 and the premium is $800,000; reserves are $5,200,000 and the retained earnings are $4,000,000. If the company decided to pay the owners dividends in term of stocks (for the market value), the dividends is equal to $4,000,000 and the market value of the stock is equal to $50.

Required

1- What is the effect of this dividend policy on the equity of Medany co.?

2- Calculate the effect of this dividend policy on the market price of Medany co. stock.