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Stock dividend—Investor Personal Finance Problem Sarah Warren currently holds 800 shares of Nutri-Foods
Stock dividend—Investor Personal Finance Problem Sarah Warren currently holds 800 shares of Nutri-Foods. The firm has 39,000 shares outstanding. The firm most recently had earnings available for common stockholders of $75,000 and its stock has been selling for S24 per share. The firm intends to retain its earnings and pay a 5% stock dividend a. How much does the firm currently earn per share? b. What proportion of the firm does Sarah Warren currently own? c. What proportion of the firm will Warren own after the stock dividend? d. At what market orice would vou expect the stock to sell after the stock dividend? a. The amount the firm currently earns per share is 5 (Round to the nearest cent.) Enter your answer in the answer box and then click Check Answer 4 parts remaining
Expert Solution
Answer :(a.) Calculation of Current Earning Per share
Earning Per share = Earnings available to equity shareholders / Number of shares outstanding
= 75000 / 39000
= 1.92
(b.) Current ownership of Sara = 800 / 39000 = 2.05%
(c.) Ownership of Sarah after Stock dividend = (800 * 1.05) / (39000 * 1.05)
= 2.05%
(d.) Market Price after Stock Dividend
Firm Value (Current) = 39000 * 24 = 936000
Number of shares after stock Dividend = 39000 * 1.05 = 40950
Share Price = 936000 / 40950 = 22.86
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