Question

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The company with the common equity accounts shown here hasdecided on a two-for-one stock split....

The company with the common equity accounts shown here has decided on a two-for-one stock split. The firm’s 67-cent-per-share cash dividend on the new (postsplit) shares represents an increase of 10 percent over last year’s dividend on the presplit stock.

Common stock ($1 par value) $ 225,000

Capital surplus 1,070,000

Retained earnings 2,543,000

Total owners’ equity $ 3,838,000

a. What is the new par value of the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. What was last year’s dividend per share?

A.	New Par Value	$	per share
B.	Dividends Per Share Last Year	$

Expert Solution

Answer A :

As it is mentioned in the question that before the stock split company has common stocks of $ 225000 and par value of one stock is $ 1 ( Total 225000 shares)

Now, the company has decided two-for-one stock split i.e. one share will be split into two and therefore par value of the stock will become half as one share will be converted into two shares.

Therefore New Par Value = $ 1 / 2 = $ 0.50 per share

Answer B :

Dividends Per Share Last Year:

Dividend per share after stock split is 67 cent per share. This dividend is 10% more than the dividend per share of last year (presplit stocks).

Therefore Dividend per share of last year = (67 cents / 110)*100 = 60.91 cents per share

jeff jeffy answered 2 years ago

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