Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock dividends is reflected in the statement of stockholders' equity. Consider the case of the Saltwater Logistics Inc.: The pre-stock dividend common stockholders' equity statement for Saltwater Logistics Inc. is as follows: Saltwater Logistics Inc. Pre-Stock Dividend Common Stockholders' Equity Common stock ($8 par, 1,600,000 shares) $12,800,000 Contributed capital in excess of par $1,200,000 $4,000,000 $18,000,000 Retained earnings Total common stockholders' equity Suppose you own 100 shares of Saltwater Logistics's stock. Saltwater Logistics's stock is trading at a market price of $16 per share, and the company
Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock dividends is reflected in the statement of stockholders' equity. Consider the case of the Saltwater Logistics Inc.: The pre-stock dividend common stockholders' equity statement for Saltwater Logistics Inc. is as follows: Saltwater Logistics Inc. Pre-Stock Dividend Common Stockholders' Equity Common stock ($8 par, 1,600,000 shares) $12,800,000 Contributed capital in excess of par $1,200,000 $4,000,000 $18,000,000 Retained earnings Total common stockholders' equity Suppose you own 100 shares of Saltwater Logistics's stock. Saltwater Logistics's stock is trading at a market price of $16 per share, and the company
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Hello. I need help with verifying if my answers are correct. I have pasted the problem and formula I used.
Transcribed Image Text:Working Note; -
Dividend 12800000*8%
Current EPS 2.40
No. of Shares issued= 1024000/16
Share Capital Part
Excess Capital Contributed
No. of Shares
=
=
New EPS =
$1024000 (amount used to calculate common stock, ccep, and retained earnings)
= 1600000
64000*8
New Shares Issued= 64000
=
as 108*15.34 = $1870
Total Earnings = 1600000*2.40= $3,840,000
Now, total no of shares 1664000
=
= 512000
1024000-512000
3840000/1664000 = $2.30
64000
and the Market Value of the Stock
PE Ratio = MPS/EPS = 16/2.4 = 6.67
now new EPS is 2.30, so the MPS
3. Value of wealth will be around $1800
=
=
$512000
6.67*2.30 = $15.34
Transcribed Image Text:Sometimes companies pay dividends in the form of additional shares of stock instead of cash. The impact of making distributions in the form of stock
dividends is reflected in the statement of stockholders' equity.
Consider the case of the Saltwater Logistics Inc.:
The pre-stock dividend common stockholders' equity statement for Saltwater Logistics Inc. is as follows:
Saltwater Logistics Inc.
Pre-Stock Dividend Common Stockholders' Equity
Common stock ($8 par, 1,600,000 shares)
$12,800,000
Contributed capital in excess of par
$1,200,000
$4,000,000
$18,000,000
Retained earnings
Total common stockholders' equity
Suppose you own 100 shares of Saltwater Logistics's stock. Saltwater Logistics's stock is trading at a market price of $16 per share, and the company
recently declared a 8% stock dividend. You are worried about the dilution of your earnings, so you'd like to make some calculations to evaluate the
impact of the stock dividend on your investment. Based on your calculations, complete the following table:
Saltwater Logistics Inc.
Post-Stock Dividend Common Stockholders' Equity
Common stock
Contributed capital in excess of par
Retained earnings
Total common stockholders' equity
If Saltwater Logistics's pre-dividend earnings per share (EPS) was $2.40, then the post-distribution EPS will be $2.22
market price of Saltwater Logistics's shares should be $20.56 per share.
$2,400
$1,600
After the distribution of the stock dividend, you would own 108 shares of Saltwater Logistics's stock, and the value of your wealth will be:(Note: Do
not round intermediate calculation)
$1,780
O $2,220
$13,824,000
$2,224,000
$1,952,000
$18,000,000
$5,200,000
$4,000,000
and the post-distribution
Suppose the state in which Saltwater Logistics is registered levies a capital impairment law. What will be the maximum amount of dividends that
Saltwater Logistics can distribute if the capital impairment provisions define capital as the par value of the firm's common stock and the capital in
excess of par account? (Hint: Use the pre-distribution data to answer this question.)
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