Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows: Common stock (3,500,000 shares at $10 par) $ 35,000,000 Capital in excess of par* 10,000,000 Retained earnings 45,000,000 Net worth $ 90,000,000 *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 company’s stock is selling for $28 per share. The company had total earnings of $7,000,000 with 3,500,000 shares outstanding and earnings per share were $2.00. The firm has a P/E ratio of 14. e. Assume Mr. Heart, the president of Health Systems, wishes to benefit stockholders by keeping the cash dividend at a previous level of $1.15 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 $28. What is an investor’s total investment worth after the stock dividend if he/she had 100 shares before the stock dividend? . 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.)
Health Systems Inc. is considering a 15 percent stock dividend. The capital accounts are as follows:
| Common stock (3,500,000 shares at $10 par) | $ | 35,000,000 |
| Capital in excess of par* | 10,000,000 | |
| 45,000,000 | ||
| Net worth | $ | 90,000,000 |
*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 company’s stock is selling for $28 per share. The company had total earnings of $7,000,000 with 3,500,000 shares outstanding and earnings per share were $2.00. The firm has a P/E ratio of 14.
e. Assume Mr. Heart, the president of Health Systems, wishes to benefit stockholders by keeping the cash dividend at a previous level of $1.15 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 $28.
What is an investor’s total investment worth after the stock dividend if he/she had 100 shares before the stock dividend?
. 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.)
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