(Stock dividends)

In the spring of 2016, the CFO of HTPL Distributing Company decided to distribute a stock dividend to its shareholders. Specifically, the CFO proposed that the company pay 0.05 shares of stock to the holders of each share of common stock such that the holder of 1,000 shares of stock would receive an additional 50 shares of common stock.

a. If the firm had total net income for the year of $10,000,000 and had 20,000,000 shares of common stock outstanding before the stock dividend, what was the firm's earnings per share?

b. After paying the stock dividend, what was the firm's earnings per share?

c. If you owned 1,000 shares of stock before the stock dividend, how many dollars of earnings did the firm earn from your 1,000-share investment? After the stock dividend was paid, how many dollars of earnings did the firm earn on your larger share holdings? What effect would you expect from the payment of the stock dividend on your total investment in the firm?

a. Before the stock dividend, what was the firm's earnings per share?

$nothing

(Round to four decimal places.)

b. After paying the stock dividend, what was the firm's earnings per share?

$nothing

(Round to four decimal places.)

c. Which of the following statements regarding the effect of stock dividend on your $1,000 investment in the firm is true?(Select the best choice below.)

A.The dollars of earnings the firm earns on your 1,000 share investment was

$500 before the stock dividend and was $500 after, indicating that the gain from a stock dividend is truly an illusion.

B.The dollars of earnings the firm earns on your 1,000 share investment was $476 before the stock dividend and was $476

after, indicating that the gain from a stock dividend is truly an illusion.

C.The dollars of earnings the firm earns on your 1,000 share investment was $500 before the stock dividend and was

$476 after, indicating that you would be worse off from a stock dividend.

D.The dollars of earnings the firm earns on your 1,000 share investment was $476 before the stock dividend and was

$500 after, indicating that you would be better off from a stock dividend.