Security Data Company has outstanding 50,000 shares of common stock currently se
ID: 2653245 • Letter: S
Question
Security Data Company has outstanding 50,000 shares of common stock currently selling at $40 per share. The firm most recently had earnings available for common stockholders of $120,000, but it has decided to retain these funds and is considering either a 5% or a 10% stock dividend in lieu of a cash dividend.
a. Determine the firm's current earnings per share.
b. If Sam Waller currently owns 500 shares of the firm's stock, determine his proportion of ownership currently and under each of the proposed stock dividend plans. Explain your findings.
c. Calculate and explain the market price per share under each of the stock dividend plans.
d. For each proposed stock dividend, calculate the earnings per share after payment of the stock dividend.
e. What is the value of Waller's holdings under each of the plans? Explain.
f. Should Waller have any preference with respect to the proposed stock dividend? Why or why not?
Explanation / Answer
Answer:
a. Current Earning Per share = Total Earnings / Number of shares
=120000 /50000
= $2.40 Per Share
b. Calculation of proportion of ownership:
Current Proportion = 500 Shares /50000 Shares
= 0.01
= 1%
The Proportion of share shall remain same under both stock dividend plans because the stock dividend proportion remains same for all stockholders.