Dark Day, Inc., has declared a $5.10 per share dividend.

Suppose capital
gains are not taxed, but dividends are taxed at 15 percent. New IRS
regulations require that taxes be withheld at the time the dividend is paid.
Dark Day sells for $93.85 per share, and the stock is about to go ex dividend.
What do you think the ex-dividend price will be?

Price
Dividend
tax rate

tax amount
effective dividend amount

ex dividend price
 93.85
5.1
15%

0.765
4.335

89.515
The owners’ equity accounts for Alexander International are shown here:
If Alexander stock currently sells for $30 per share and a 10 percent stock
dividend is declared, how many new shares will be distributed? Show how
the equity accounts would change.
If Alexander declared a 25 percent stock dividend, how would the accounts
change?

1st scenario

changed equity scructure

 https://homework.study.com/explanation/the-owners-equity-accounts-for-a

stock dividend % 10%

par value $ 0.50

Common stock ($0.50 par value) $ 20,000.00
Capital surplus $ 285,000.00
Retained earnings $ 638,120.00
Total equity $ 943,120.00

no of shares o/s 40000

new shares 4000.00

common stock $ 22,000.00

capital surplus $ 403,000.00
retained earnings $ 518,120.00
total equity $ 943,120.00
rs-equity-accounts-for-alexander-international-are-shown-here-a-if-alexander-stock-currently-sells-for-30-per-share-and-a-10-

share market
value $ 30.00
or-30-per-share-and-a-10-percent-stock-dividend-is-declared-how-many-new-shares-will-be-d.html
For the company in Problem 2, show how the equity accounts will change if:
Alexander declares a four-for-one stock split. How many shares are
outstanding now? What is the new par value per share?
Alexander declares a one-for-five reverse stock split. How many shares are
out- standing now? What is the new par value per share?
Red Rocks Corporation (RRC) currently has 425,000 shares of stock
outstanding that sell for $80 per share. Assuming no market imperfections
or tax effects exist, what will the share price be after:
a. RRC has a five-for-three stock split?
b. RRC has a 15 percent stock dividend?
c. RRC has a 42.5 percent stock dividend?
d. RRC has a four-for-seven reverse stock split?

Determine the new number of shares outstanding in parts (a) through (d).
The balance sheet for Chevelle Corp. is shown here in market value terms.
There are 9,000 shares of stock outstanding.

The company has declared a dividend of $1.40 per share. The stock goes ex
divi- dend tomorrow. Ignoring any tax effects, what is the stock selling for
today? What will it sell for tomorrow? What will the balance sheet look like
after the dividends are paid?
In the previous problem, suppose Chevelle has an- nounced it is going to
repurchase $12,600 worth of stock. What effect will this transaction have on
the equity of the firm? How many shares will be outstanding? What will the
price per share be after the repurchase? Ignoring tax effects, show how the
share repurchase is effectively the same as a cash dividend.
The market value balance sheet for Sci-Fi Crimes Manu- facturing is shown
here. Sci-Fi Crimes has declared a 25 percent stock dividend. The stock goes
ex dividend tomorrow (the chronology for a stock dividend is simi- lar to
that for a cash dividend). There are 14,000 shares of stock outstanding.
What will the ex-dividend price be?
The company with the common equity accounts shown here has declared a
15 percent stock dividend when the market value of its stock is $43 per
share. What effects on the equity accounts will the distribution of the stock
dividend have?
Common stock ($1 par value)
Capital surplus
Retained earnings
Total equity
$ 385,000.00
$ 846,000.00
$ 3,720,800.00
$ 4,951,800.00
In the previous problem, suppose the company instead decides on a four-for-
one stock split. The firm’s 75-cent per share cash dividend on the new
(postsplit) shares represents an increase of 10 percent over last year’s
dividend on the presplit stock. What effect does this have on the equity
accounts? What was last year’s dividend per share?
You own 1,000 shares of stock in Avondale Corporation. You will receive a
$1.85 per share dividend in one year. In two years, Avondale will pay a
liquidating dividend of $58 per share. The required return on Avondale
stock is 15 percent. What is the current share price of your stock (ignoring
taxes)? If you would rather have equal dividends in each of the next two
years, show how you can accomplish this by creating homemade dividends.
Hint:
Dividends will be in the form of an annuity.
Current share price of stock (P0) D1/(1+r)+D2/(1+r)^2
P1 D2/(1+r)

shares owned 1000

dividend in 1 year $ 1.85
liquidating dividend $ 58.00
required return 15%

dividend discounted for year 1 $ 1.61

dividend discounted for year 2 $ 43.86
current share price of stock (P0) $ 45.47

Dividends in two equal installments $ 27.97 annuity

dividend for 1000 shares $ 27,966.28
desired CF in year 1 $ 27,966.28
desired CF in year 2 $ 27,966.28

actual CF in year 1 $ 1,850.00

actual CF in year 2 $ 58,000.00

1st year
P1 D2/(1+r)
sell shares at P1= $ 50.43
number of sell shares 517.822774659182
balance shares 482.177225340818
total CF in year 1 $ 27,966.28

2nd year
actual dividends $ 58,000.00
remaning shares 482.177225340818
expected income in year 2 $ 27,966.28
surplus in CF $ 30,033.72
buy shares at price $ 58.00
shares bought 517.822774659182
total shares 1000
In the previous problem, suppose you want only $750 total in dividends the
first year. What will your homemade dividend be in two years?
shares owned 1000
dividend in 1 year $ 1.85
liquidating dividend $ 58.00
required return 15%

dividend discounted for year 1 $ 1.61

dividend discounted for year 2 $ 43.86
current share price of stock (P0) $ 45.47

desired CF in year 1 $ 750.00

desired CF in year 2

actual CF in year 1 $ 1,850.00

actual CF in year 2 $ 58,000.00

1st year
P1 D2/(1+r)
sell shares at P1= $ 50.43
number of sell shares -21.8103448
balance shares 1021.810345
total CF in year 1 $ 750.00

2nd year
dividends $ 58,000.00
remaning shares 1021.810345
expected income in year 2 $ -
surplus in CF $ 58,000.00
buy shares=
Rudolph Corporation is evaluating an extra dividend versus a share
repurchase. In either case, $11,000 would be spent. Current earnings are
$1.40 per share, and the stock currently sells for $58 per share. There are
2,000 shares outstanding. Ignore taxes and other imperfections in answering
the first two questions.
Evaluate the two alternatives in terms of the effect on the price per share of
the stock and shareholder wealth.
What will be the effect on Rudolph’s EPS and PE ratio under the two
different scenarios?
In the real world, which of these actions would you recommend? Why?
 10000 9000
10000 11120
₹ 16,900.51 ₹ 16,900.51