Dividend Decision

Q1. Lee Ann, Inc., has declared $7.50 per share dividend. Suppose
capital gain are not texed, but dividends are taxed at 15%. New
regulations required that taxes be withheld when the dividend is paid.
The company’s stock sells for $93 per share, and is about to go ex-
dividend. What do you think the ex dividend price will be?

Ans:
After-tax Dividend $ 6.38

Ex-dividend price $ 86.63

Q2.The owner's equity account for Hexagon International are shown here:
Particulars Amt.
Common Stock 40000
Capital Surplus 155000
Retained earnings 538400
Total Owners Equity 733400

a. The company's stock currently sells for $39 per share and a 10% stock dividend is declared, how
many shares will be distributed? Show how the equity accounts would change.
b. If the company declared a 25% stock dividend, how would account changes?
a. New shares outstanding 44,000
Ans: New shares issued 4,000
Capital surplus on new shares $ 1,52,000

Common stock $ 44,000

Capital surplus 3,07,000
Retained earnings 3,82,400
$ 7,33,400

b. New shares outstanding 50,000

New shares issued 10,000
Capital surplus on new shares $ 3,80,000

Common stock $ 50,000

Capital surplus 5,35,000
Retained earnings 1,48,400
$ 7,33,400
Q3. For the company in problem 2, show how the equity account will
change if:
a. The company declared a four-for-one stock split, how many shares
outstanding now? what is the new par value per share?
b. The company declared one-for-five reverse stock split. How many
shares are outstanding now? what is the new par value per share?

a. New shares outstanding 1,60,000

Ans: The accounts are unchanged except that
par value is now $ 0.25

b. New shares outstanding 8,000

The accounts are unchanged except that
par value is now $ 5.00
Q4.Roll Corporation currently has 465000 share of stock outstanding
that sell for $73 per share. Determine the number of shares
outstanding. Assuming no market Imperfection or text effects exist,
what will the share price be after.
a. RC has a five-for-three stock split?
b. RC has a 15% stock dividend?
c. RC has a 42.5% stock dividend?
d. RC has a four-for-seven reverse stock split?
Ans: a. Stock split $ 43.80
b. Stock dividend $ 63.48
c. Stock dividend $ 51.23
d. Stock split $ 127.75

a. New shares outstanding 7,75,000

b. New shares outstanding 5,34,750
c. New shares outstanding 6,62,625
d. New shares outstanding 2,65,714