XYZ Corp has 1000 shares outstanding and retained earnings of $25,000. Theoretically! what would you expect to happen to the price of their stock, currently Selling for $50 per Share! if a 20% stock dividend is declared?
Answer(s): C
The total market capitalization of 1,000 shares is $50,000. That should remain about the same following the issuance of the 200 shares of stock dividend. Thus, dividing $50,000 by 1,200 shares equals $41.67 per share.
A company had 150,000 shares outstanding on January 1. On March 1,75,000 additional shares were issued through a stock dividend. Then on November 1, the company issued 60,000 shares for cash. The number of shares to be used in the denominator of the EPS calculation for the year is
The weighted-average of shares outstanding during the year is used in the EPS denominator. Shares issued in a stock dividend are assumed to have been outstanding as of the beginning of the earliest accounting period presented. Thus, the 75,000 shares issued on March 1 are deemed to have been outstanding on January 1. The EPS denominator equals 235,000 shares {[150,000 x (12 months ÷ 12 months)] + [75,000 x (12 months ÷ 12 months)) + [60,000 x (2 months ÷ 12 months)]}
Everything else being equal, a <List A> highly leveraged firm will have <List B> earnings per share.List A List B
Earnings per share is less volatile in less highly leveraged firms. Lower fixed costs result in less variable earnings when sales fluctuate.
In calculating diluted earnings per share when a company has convertible bonds outstanding, the number of common shares outstanding must be <List A> to adjust for the conversion feature of the bonds, and the net income must be <List B> by the amount of interest expense on the bonds, net of taxList A List B
Answer(s): A
The weighted-average number of shares outstanding must be increased to reflect the shares into which the bonds could be converted. Also, the effect of the bond interest on net income must be eliminated. In this way, earnings per share is calculated as if the bonds had been converted into common shares as of the start of the year.
All else being equal, a company with a higher dividend-payout ratio will have a <List A> debt-to-assets ratio and a <List B> current ratio.ListA ListB
Answer(s): B
A company with a higher dividend payout ratio is distributing more of its earnings as dividends to common shareholders. It will have less Cash and less total assets than a comparable firm with a lower payout ratio. The debt-to-assets ratio will be higher because total assets are lower, and the current ratio will be lower because cash is lower.
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