In the spring of 2014 the CFO of Placebo Pharmaceuticals, Inc took a proposal to the firms board of directors to distribute a noncash dividend to the firms shareholders in the form of new shares of common stock Specifically, the CFO proposed that the company pay 0 025 shares of stock to the holders...

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In the spring of 2014 the CFO of Placebo Pharmaceuticals, Inc. took a proposal to the firms

Question:

In the spring of 2014 the CFO of Placebo Pharmaceuticals, Inc. took a proposal to the firm’s board of directors to distribute a noncash to the firm’s shareholders in the form of new shares of common stock. Specifically, the CFO proposed that the company pay 0.025 shares of stock to the holders of each share of such that the holder of 1,000 shares of stock would receive an additional 25 shares of common stock.
a. If Placebo had total net income for the year of $ 10,000,000 and 20,000,000 shares of outstanding before the stock what are firm earnings per share?
b. After paying the stock what is the firm’s earnings per share?
c. If you owned 1,000 shares of stock before the stock how many dollars of earnings did the firm earn on your 1,000 share investment? After the stock is paid, how many dollars of earnings did the firm earn on your larger share holdings? What effect would you expect from the payment of the stock on your total investment in the firm?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...