Question 1

Edie's Health and Beauty Supply has 125,000 shares outstanding with a par value of £1 per share and a market value of £5 a share.The company has retained earnings of £76,500 and additional
Paid in capital of £340,000.The company just announced a 1-for-5 reverse stock split.What will the
Market value per share be after the split?

Accepted Answer

The answer of Edie's Health and Beauty Supply has 125,000...

Question 2

Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of ﬁnancial position shows £7,000 in the ordinary equity account, £58,000
In the additional paid in capital account and £32,500 in the retained earnings account.The ﬁrm just
Announced a 50% (large) stock dividend.What is the value of the ordinary equity account after the
Dividend?

Accepted Answer

First, we need to calculate the total number of shares outstanding after the stock dividend. A 50% stock dividend means that there will be an additional 50% of the current 7,000 shares outstanding, so:

7,000 x 0.5 = 3,500 additional shares

Total shares outstanding after the dividend:

7,000 + 3,500 = 10,500 shares

Next, we need to calculate the new par value of the shares:

Since the par value per share is £1.00, and there are now 10,500 shares outstanding, the new par value of the shares is:

10,500 x £1.00 = £10,500

Finally, we need to add the additional paid-in capital and retained earnings to the new par value to get the value of the ordinary equity account:

£10,500 + £58,000 + £32,500 = £101,000

Therefore, the value of the ordinary equity account after the dividend is £10,500.

Question 3

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of ﬁnancial position shows £15,000 in the ordinary equity account,
£315,000 in the additional paid in capital account, and £189,000 in the retained earnings account.
The ﬁrm just announced a 3-for-2 stock split.What will the market price per share be after the split?

Accepted Answer

After the split, the number of outstanding shares will increase by 50% (3-for-2 means there will be 3 shares for every 2 shares currently outstanding), so there will be 22,500 shares outstanding. The total equity remains the same, so the new par value will be £1/1.5 = £0.67 per share. The new total equity will be £15,000 + £315,000 + £189,000 = £519,000, which divided by 22,500 shares gives a book value per share of £23.07. However, since the market price was previously £36 per share, we can assume that the market value is higher than the book value, so the market price per share after the split will likely be higher than £23.07, but not as high as the original £36. The closest option is B) £24 per share.

Question 4

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 7-for-3 stock split.What will the market price per share be after the split?

Accepted Answer

A 7-for-3 stock split means that for every 3 shares that someone held before the split, they now have 7. So, the total number of shares outstanding will increase to 125,000 x (7/3) = 291,667 shares. 
However, the total value of the shares should remain the same, so we can calculate the new market price per share by dividing the original market price by 7/3:
£93 / (7/3) = £39.86
Therefore, the market price per share after the split will be £39.86, which is choice B.

Question 5

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of ﬁnancial position shows £15,000 in the ordinary equity account,
£315,000 in the additional paid in capital account, and £189,000 in the retained earnings account.
The ﬁrm just announced a 3-for-2 stock split.What will the value of the ordinary equity account be
After the split?

Accepted Answer

A 3-for-2 stock split means that each shareholder will receive 1.5 new shares for every 1 share they currently own. Since Robinson's has 15,000 shares outstanding, the total number of shares will increase to 22,500 (15,000 x 1.5). However, the par value per share will be reduced to 2/3 of its original value, or £0.67. Therefore, the value of the ordinary equity account will remain the same at £15,000 (15,000 shares x £0.67 par value per share).

Question 6

The Retail Outlet has 6,000 shares outstanding with a par value of £1.00 per share.The current market value of the ﬁrm is £420,000.The statement of ﬁnancial position shows the additional paid
In capital account value of £136,000 and retained earnings of £234,000.The company just
Announced a 2-for-1 stock split.What will the retained earnings account balance be after the split?

Accepted Answer

A stock split does not affect the retained earnings account. It simply increases the number of shares outstanding and adjusts the par value per share accordingly, without changing the equity structure.

Question 7

Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of ﬁnancial position shows £7,000 in the ordinary equity account, £58,000
In the additional paid in capital account and £32,500 in the retained earnings account.The ﬁrm just
Announced a 50% (large) stock dividend.What is the value of the additional paid in capital account
After the dividend?

Accepted Answer

The answer of Bruno's has 7,000 shares outstanding with a...

Question 8

It has been shown that in the absence of taxes and other market imperfections ﬁrm value will be unaffected by dividend policy.Explain the logic behind this conclusion.Next, describe three real- world factors that may cause one dividend policy to be preferable to another.

Accepted Answer

The answer of It has been shown that in the...

Question 9

The ordinary equity of Margot is selling for £56 a share.The par value per share is £1.Currently, the ﬁrm has a total market value of £89,600.How many shares will be outstanding if the ﬁrm does a 2-
For-1 stock split?

Accepted Answer

If the firm does a 2-for-1 stock split, the number of outstanding shares will double, but the total market value will remain the same. Therefore, the total market value after the split will still be £89,600.

Current number of outstanding shares = Total market value / Price per share
= £89,600 / £56
= 1,600 shares

After the 2-for-1 stock split, the number of outstanding shares will double to:
= 1,600 x 2
= 3,200 shares

Therefore, the best choice is D.

Question 10

Edie's Health and Beauty Supply has 125,000 shares outstanding with a par value of £1 per share and a market value of £5 a share.The company has retained earnings of £76,500 and additional
Paid in capital of £340,000.The company just announced a 1-for-5 reverse stock split.What will the
Par value per share be after the split?

Accepted Answer

In a 1-for-5 reverse stock split, every 5 shares are combined into 1 share. This increases the par value per share by a factor of 5. The original par value is £1, so after the split, the par value will be £5.

Question 11

Edie's Health and Beauty Supply has 125,000 shares outstanding with a par value of £1 per share and a market value of £5 a share.The company has retained earnings of £76,500 and additional
Paid in capital of £340,000.The company just announced a 1-for-5 reverse stock split.How many
Shares will be outstanding after the split?

Accepted Answer

After a 1-for-5 reverse stock split, for every 5 shares originally held, shareholders will now hold 1 share. Therefore, the new number of shares outstanding is 125,000 / 5 = 25,000 shares.

Question 12

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of ﬁnancial position shows £15,000 in the ordinary equity account,
£315,000 in the additional paid in capital account, and £189,000 in the retained earnings account.
The ﬁrm just announced a 3-for-2 stock split.How many shares will be outstanding after the split?

Accepted Answer

A 3-for-2 stock split means that for every two shares held by a shareholder, they will receive three additional shares.

There are currently 15,000 shares outstanding.

After the stock split, for every two shares held, shareholders will receive three additional shares.

So, the total number of shares outstanding will be:

15,000 x (3/2)

= 22,500 shares

Therefore, the correct answer is D.

Question 13

The Retail Outlet has 6,000 shares outstanding with a par value of £1.00 per share.The current market value of the ﬁrm is £420,000.The statement of ﬁnancial position shows the additional paid
In capital account value of £136,000 and retained earnings of £234,000.The company just
Announced a 2-for-1 stock split.What will the ordinary equity account balance be after the split?

Accepted Answer

A 2-for-1 stock split means that each shareholder will receive 2 shares for every 1 share they currently hold. Therefore, the number of outstanding shares will double to 12,000 (6,000 x 2). However, the par value per share will be halved to £0.50. The additional paid in capital account value and retained earnings will not be affected by the stock split. Therefore, the new ordinary equity account balance will be 12,000 shares x £0.50 par value = £6,000.

Question 14

Robinson's has 15,000 shares outstanding with a par value of £1.00 per share and a market price of £36 a share.The statement of ﬁnancial position shows £15,000 in the ordinary equity account,
£315,000 in the additional paid in capital account, and £189,000 in the retained earnings account.
The ﬁrm just announced a 3-for-2 stock split.What will the paid in surplus account value be after the
Split?

Accepted Answer

A stock split does not affect the total value of the paid-in surplus account. Therefore, the paid-in surplus account value remains at £315,000 after the split.

Question 15

Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of ﬁnancial position shows £7,000 in the ordinary equity account, £58,000
In the additional paid in capital account and £32,500 in the retained earnings account.The ﬁrm just
Announced a 50% (large) stock dividend.What is the value of the retained earnings account after
The dividend?

Accepted Answer

£32,500 in retained earnings - £3,500 (50% of 7,000 shares * £1 par value) = £29,000 in retained earnings after the dividend.

Question 16

Schaeffer Shippers announced on May 1, 2004 that it will pay a dividend of £5.00 per share on June 15 to all holders on record as of May 31st.The ﬁrm's share price is currently at £70 per share. Assume that all investors are in the 33% tax bracket.Given that the ex-dividend date is May 29, what should happen to Schaeffer's share price on May 29?

Accepted Answer

The answer of Schaeffer Shippers announced on May 1, 2004...

Question 17

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 5-for-3 stock split.How many shares will be outstanding after the split?

Accepted Answer

A 5-for-3 stock split means the number of shares outstanding will increase by 5/3 times. Therefore, the new number of shares outstanding will be:

125,000 x 5/3 = 208,333 shares.

So, the best choice is E.

Question 18

Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of ﬁnancial position shows £7,000 in the ordinary equity account, £58,000
In the additional paid in capital account, and £32,500 in the retained earnings account.The ﬁrm just
Announced a 50% (large) stock dividend.What is the market value per share after the dividend?

Accepted Answer

A 50% stock dividend means that the company is issuing additional shares equal to 50% of the current number of outstanding shares. In this case, 50% of 7,000 shares is 3,500 shares. After the stock dividend, the company will have 10,500 shares outstanding (7,000 original shares + 3,500 new shares).

To calculate the new market value per share, we need to adjust for the stock dividend by dividing the original market value by the new number of shares outstanding.

Original market value per share: £12 
New number of shares outstanding: 10,500 
New market value per share: £8 [£12 / 10,500 = £0.0011429/share, rounded to £0.0011/share; £0.0011 x 7,000 = £7.70; £12 + £7.70 = £19.70; £19.70 / 10,500 = £1.88; £12 + £1.88 = £13.88; £13.88 / (1 + 0.5) = £8.00]

Therefore, the market value per share after the dividend is £8.00 (option B).

Question 19

Bob's Auto Group has 25,000 shares outstanding at a market price of £4.50 a share.What will the market price per share be if the company does a 1-for-5 reverse stock split?

Accepted Answer

The answer of Bob's Auto Group has 25,000 shares outstanding...

Question 20

The Retail Outlet has 6,000 shares outstanding with a par value of £1.00 per share.The current market value of the ﬁrm is £420,000.The statement of ﬁnancial position shows the additional paid
In capital account value of £136,000 and retained earnings of £234,000.The company just
Announced a 2-for-1 stock split.What will the market price per share be after the split?

Accepted Answer

After a 2-for-1 stock split, the number of shares doubles, and the market price per share is halved. The current market value per share is £420,000 / 6,000 = £70. After the split, the market price per share will be £70 / 2 = £35.

Quiz 18: Dividends and Other Payouts

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 7-for-3 stock split.What will the market price per share be after the split?

It has been shown that in the absence of taxes and other market imperfections ﬁrm value will be unaffected by dividend policy.Explain the logic behind this conclusion.Next, describe three real- world factors that may cause one dividend policy to be preferable to another.

The ordinary equity of Margot is selling for £56 a share.The par value per share is £1.Currently, the ﬁrm has a total market value of £89,600.How many shares will be outstanding if the ﬁrm does a 2- For-1 stock split?

The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 5-for-3 stock split.How many shares will be outstanding after the split?

Bob's Auto Group has 25,000 shares outstanding at a market price of £4.50 a share.What will the market price per share be if the company does a 1-for-5 reverse stock split?