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# Stock rights, dividends, value of right, EPS after dividend

3) A firm has a market value equal to its book value. Currently, the firm has excess cash of \$400 and other assets of \$7,600. Equity is worth \$8,000. The firm has 200 shares of stock outstanding and net income of \$900. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after the dividend is paid?

4) The Wordsmith Corporation has 10,000 shares outstanding at \$30 each. They expect to raise \$150,000 by a rights offering with a subscription price of \$25. How many rights must you turn in to get a new share?

5) Assuming everything else is constant, if a stock's old price is \$25 and the ex-rights or new stock price is \$19, then how much is the value of the right?

#### Solution Preview

1. Earnings per share = Net Income/Number of shares outstanding
EPS = 900/200 = \$4.50
Payment of cash dividend would affect the market price of the firm but ...

#### Solution Summary

The solution explains questions relating to stock rights, dividends, value of the right and EPS after dividend is paid

\$2.19