In the spring of 2016, the CFO of HTPL Distributing Company decided to distribute a stock dividend

Question:

In the spring of 2016, the CFO of HTPL Distributing Company decided to distribute a stock dividend to its shareholders. Specifically, the CFO proposed that the company pay 0.05 shares of stock to the holders of each share of common stock, such that the holder of 1,000 shares of stock would receive an additional 50 shares of common stock.

a. If the firm had total net income for the year of $10 million and had 20 million shares of common stock outstanding before the stock dividend, what was the firm's earnings per share?

b. After paying the stock dividend, what was the firm's earnings per share?

c. If you owned 1,000 shares of stock before the stock dividend, how many dollars of earnings did the firm earn from your 1,000-share investment? After the stock dividend was 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 dividend 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...