The firm earned $300,000 after taxes in 20X3 and paid out 50 percent of these earnings as cash dividends. The price on the firm's stock on December 30 was $5.
SHERILL CORPORATION SHAREHOLDERS' EQUITY
AS OF DECEMBER 30, 20X3
Common stock ($1 par value; 1,000,000 shares)……………………….$1,000,000
Additional paid-in capital……………………………………………… 300,000
Retained earnings……………………………………………………… 1,700,000
Total shareholders' equity……………………………………………...$3,000,000
a. If the firm declared a stock dividend of 3 percent on December 31, what would be the reformulated shareholders' equity account?
b. Assuming the firm paid no stock dividend, how much would earnings per share be for 20X3? Dividends per share?
c. Assuming a 3 percent stock dividend, what would happen to earnings per share (EPS) and dividends per share (DPS) for 20X3?
d. What would the price of the stock be after the 3 percent stock dividend if there were no signaling or other effects?