Health Systems Inc. is considering a 10 percent stock dividend. The capital accounts are as follows:

Common Stock (3,000,000 shares at $10 par)	$30,000,000
Capital in Excess of par	20,000,000
Retained Earnings	45,000,000
Net Worth	95,000,000

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

The companys stock is selling for $42 per share. The company had total earnings of $8,400,000 with 3,000,000 shares outstanding and earnings per share were $2.80. The firm has a P/E ratio of 15.

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

B. What adjustments would be made to EPS and the stock price?

EPS:

Stock Price:

C. How many shares would an investor have if he or she originally had 90?

D. What is the investors total investment worth before and after the stock dividend if the P/E ratio remains constant?

E. Assume Mr. Heart, the president of Health Systems, wishes to benefit stockholders by keeping the cash dividend at a previous level of $1.05 in spite of the fact that the stockholders now have 10 percent more shares. Because the cash dividend is not reduced, the stock price is assumed to remain at $42.

F. What is an investors total investment worth after the stock dividend if he/she had 90 shares before the stock dividend?

G. As a final question, what is the dividend yield on this stock under the scenario described in part e