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    Stock Dividend, Common Stock, and Dividend Payout Ratio

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    1. Heintz Corp. has just declared a 10% stock dividend. The company's pre-stock dividend common stockholders' equity was as follows:

    Common stock ($0.50 par, 10,000,000 shares) $5,000,000
    Contributed capital in excess of par 48,000,000
    Retained earnings 97,500,000
    Total common stockholders' equity 150,500,000

    If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?

    2. Cycle Out has 1,000,000 shares outstanding and currently has annual earnings per share of $5.20. If Cycle's stock price is $62.40, what would be the expected stock price if Cycle repurchases 50,000 shares?

    3. If Sulzer has 10 million shares outstanding, operating income (EBIT) of $42.4 million, and interest expenses of $6.8 million, what is Sulzer's dividend payout ratio, given that the dividend per share is $0.80? Assume a marginal tax rate of 40%.

    4. WPI Inc. has the following current equity accounts on its balance sheet:

    Common stock ($2.50 par, 500,000 shares) $1,250,000
    Contributed capital in excess of par $10,000,000
    Retained earnings $15,540,000
    Total $26,790,000

    If WPI earned $3.20 per share this year, what is the maximum dividend per share that WPI may pay if the state capital impairment provisions are limited to the par value and the contributed capital in excess of par accounts?

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    Solution Preview

    For a 10% stock dividend where the par value is $0.50 and 10,000,000 shares outstanding, the retained earnings will go down by $0.50*10,000,000*10%=$500,000. Hence the retained earnings after the dividend is distributed is $97,500,000-$500,000=$97,000,000.
    Given that,
    Shares outstanding=1,000,000
    Earnings per share=$5.20
    Current stock price=$62.40
    P/E Ratio=$62.40/$5.20=12
    Total ...

    Solution Summary

    This solution provides a detailed, step by step calculation of the given accounting problem.