Question
Could you please provide a detailed answer and corresponding formulas for my understanding for this question please. Thank you for your help. The management of
Could you please provide a detailed answer and corresponding formulas for my understanding for this question please. Thank you for your help.
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 $1million. Its net income for the most recent fiscal year was $500,000. The company's 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.
a.Before issuing the stock dividend, the company's management would like to know the effect of such a stock dividend on the following:
i.The number of shares outstanding
ii.Earnings
iii.Market value of cash
iv.Market value of equity
v.Share price
vi.Earnings per share (EPS)
vii.Price-earnings ratio (P/E)
viii. Shareholders' wealth
b. The company's management would like to hold its earnings per share within the range of 0.4-0.6. Given this constraint, should the company go ahead with the stock dividend?
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