Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows:

Common stock (4,000,000 shares at $10 par)	$	40,000,000
Capital in excess of par*		15,000,000
Retained earnings		45,000,000
Net worth	$	100,000,000

*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 $36 per share. The company had total earnings of $12,000,000 with 4,000,000 shares outstanding and earnings per share were $3.00. The firm has a P/E ratio of 12.

a. What adjustments would have to be made to the capital accounts for a 15 percent stock dividend? Show the new capital accounts. (Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000).)

b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) (Do not round intermediate calculations and round your answers to 2 decimal places.)

c. How many shares would an investor have if he or she originally had 80? (Do not round intermediate calculations and round your answer to the nearest whole share.)

d. What is the investors total investment worth before and after the stock dividend if the P/E ratio remains constant? (Do not round intermediate calculations and round your answers to the nearest whole dollar.);

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 15 percent more shares. Because the cash dividend is not reduced, the stock price is assumed to remain at $36.

What is an investors total investment worth after the stock dividend if he/she had 80 shares before the stock dividend?

f. Under the scenario described in part e, is the investor better off?

multiple choice

Yes

No

g. As a final question, what is the dividend yield on this stock under the scenario described in part e? (Input your answer as a percent rounded to 2 decimal places.)

Heslth Syatems Inc. is conaidering s15 percent stock divdend. The cspitsl sccounts are as folowz: The incresse in csptsl in excess of parsa 0 result of a stack dividend is equal to the shares created times (Market price - Par value). The company's stack is selling for $36 per share. The company had tatal earnings of $12,000,000 with 4,000,000 shsres outsteneing and eorninga per share were $3.00. The firm has a PE ratio of 12 a. What sdjustments wauld heve to be msde to the copital accounts for s15 percent stock dlidend? Show the new csptsi sccounta. (Do not round Intermediate calculations. Input your answers in dollers, not millions (e.g. $1,230,000%) b. What edjustments would be made to EPS and the stock price? (Assume the P,E ratio remains constent) (Do not round Intermedlate colculations and round your answers to 2 decimal ploces.) c. How meny shares would an Investor have if he or she originslly hed 90 ? (Do not round Intermediete calculations and round your answer to the nearest whole share.) d. Whst is the investor's totsl Investment worth before and sfter the stock olvidend if the P/E rsto remsins constsnt? (Do nat round Intermediste calculations and round your answers to the nearest whole dollar); e. Assume Mc Hesr, the president of Heoth Systema, wishes to benefit stockholiers by keeping the csih cludend st s prevous level of \$1.05 In splte of the fact thet the stockholders naw have 15 percent more shares. Becouse the cssh dividend is nat reduced, the stock price is assumed to remsin et $36. What is an Investar's tatal investment worth after the stock dlidend If he khe had 90 shares before the stock dividend? f. Under the scenario described in psit e, is the investor better off? Yes No 9. As a final questian, what is the dividend yeld on thls stack under the scensrla described in part e ? (Input your answer as a percent rounded to 2 decimel ploces.)