The company with the common equity accounts shown here has declared a 5-for-one
ID: 2720714 • Letter: T
Question
The company with the common equity accounts shown here has declared a 5-for-one stock split when the market value of its stock is $33 per share. The firm’s 75-cent per share cash dividend on the new (postsplit) shares represents an increase of 20 percent over last year’s dividend on the presplit stock. Common stock ($1 par value) $ 475,000 Capital surplus 864,000 Retained earnings 3,900,800 Total owner's equity $ 5,239,800
What is the new par value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
New par value $ per share
What was last year's dividend per share? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Dividend per share $
Explanation / Answer
Number of share outstanding = 475,000
Par value = $475,000
Capital surplus = $864,000
Retained earnings = $3,900,800
Total value of equity = $5,239,800
Company split stock in five for one stock that is for each stock company offer five share.
Presplit number of stock = 475,000
After split number of stock = 475,000 × 5
=2,375,000
Post-split par value of stock = $475,000 / 2,375,000
= $0.20
Post-split Par value of stock is $0.20 per stock.
After split total dividend per share = $0.75 per share
So before split value of dividend to each stock = $0.75 × 5
= $3.75
This year dividend payment is 20% higher than last year. S
So last year dividend payment = $3.75 / (1+ 20%)
= $3.125
Hence, last year dividend paid to each stock was $3.125.