Dividend Policy

Ch 15: Assignment - Dividend Policy Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock dividends is reflected in the statement of stockholders' equity Consider the case of the Blue Box Crate Company: The pre-stock dividend common stockholders' equity statement for Blue Box Crate Company is as follows: Blue Box Crate Company Pre-Stock Dividend Common Stockholders' Equity Common stock ($6 Contributed capital in excess of par Retained earnings par, 1,200,000 shares) $7,200,000 $900,000 $3,000,000 $11,100,000 Total common stockholders' equity Suppose you own 100 shares of Blue Box Crate's stock. Blue Box Crate's stock is trading at a market price of $12 per share, and the company recently declared a 10% stock dividend. You are worried about the dilution of your earnings, so you'd like to make some calculations to evaluate the impact of the stock dividend on your investment. Based on your calculations, complete the following table: Blue Box Crate Company Post-Stock Dividend Common Stockholders' Equity Common stock Contributed capital in excess of par Retained earnings Total common stockholders' equity $11,100,000 If Blue Box Crate's pre-dividend earnings per share (EPS) was $1.80, then the post-distribution EPS will be , and the post-distribution market price of Blue Box Crate's shares should be per share After the distribution of the stock dividend, you would own 110 shares of Blue Box Crate's stock, and the value of your wealth will be: O $1,090 O $1,800 o $1,640 O $1,200 Suppose the state in which Blue Box Crate is registered levies a capital impairment law. What l be the maximum amount of dividends that Blue Box Crate can distribute if the capital impairment provisions define capital as the par value of the firm's common stock? (Hint: Use the pre-distribution data to answer this question.) $3,900,000 $10,200,000