Conflict Organization Inc.(COI)has four members on its 13-member board of directors who can never agree with one another. Very often they disagree among themselves (and with other board members) just for the sake of argument. Last night's meeting was no exception. The Board was called to an emergency meeting on May 31, 20XX to declare a special dividend of $1 per share payable within 30 days. The dividend is payable from past earnings retained in the business in hopes that such an action will appease some disgruntled shareholders. As usual, the dissenting quartet had centre stage at the meeting. They each proposed a different alternative:

1. John Messer agreed with the decision to pay the cash dividend and pointed to the Balance Sheet, which indicated that there is sufficient cash to meet the payments.

2. However, Pat Lieper disagreed and argued for a 20% stock dividend. She noted that shareholders should be happy to receive more shares.

3. Jack Tripper took the position that if shareholders would be happy with more shares, then a better strategy is a 2-for-1 stock split.

4. Finally, in disgust, Sarah Chin suggested that the shares of unhappy shareholders could be repurchased for cancellation. She estimated that about 15% of outstanding shares could be repurchased and cancelled (at market price as of March 31, 20XX).

Other board members were about equally split among the four alternatives suggested by the dissenters. Therefore, no decision was made on the special dividend. Another meeting is scheduled for next week to give members some time to reconsider the issue.

Required:

You have been asked to consider the four alternatives presented by John, Pat, Jack, and Sarah. Assuming that each of the four alternatives is acceptable, illustrate the impact that each alternative will have on reporting details for shareholders equity, restated earnings per share, and the theoretical market price of the shares.

On the next page, complete the schedule which outlines the restructure of shareholders equity for each alternative. The initial situation is presented as an example. Net Income for the year was $1,505,740. (SHOW ALL CALCULATIONS.)

Conflict Organization Inc.

Restructuring of Shareholders Equity

March 31, Cash Stock Stock Repurchase

20XX Dividend Dividend Split Shares

(given info)

Shareholders Equity

- Common Stock, par value $ 4,208,280

- Contributed Capital 5,611,580

- Retained Earnings 10,858,624

Total Equity $20,678,484

Par Value $ 5.00

# of common shares 841,656

Earnings Per Share $1.79

Closing EPS

Market Price $9.83

Theoretical Market Price