Explore BrainMass
Share

Retained Earnings Balance after Dividend; Market Price

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

10) Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in the capital in excess of par account, $10,000 in the common stock account, and $42,700 in the retained earnings account. The firm just announced a 10% (small) stock dividend.

a) What will the balance in the retained earnings account be after the dividend?
b) What will the market price per share be after the dividend?

Please use Excel.

© BrainMass Inc. brainmass.com October 17, 2018, 3:51 am ad1c9bdddf
https://brainmass.com/business/price-to-earnings-ratio/retained-earnings-balance-dividend-market-price-440821

Solution Preview

Please see the attached Excel 97-2003 spreadsheet for format and formulas.

Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in
the capital in excess of par account, $10,000 in the common stock account, and $42,700 in the retained earnings account. The ...

Solution Summary

This solution illustrates how to compute the balance in retained earnings after a stock dividend has been declared and paid, and the effect of that dividend on the market price per share.

$2.19
Similar Posting

Finance: Payout, Dividends, Price, Income and Balance Sheets

P16-3 Charleston Industrial revised its dividend policy and decided that it wants to maintain a retained earnings account of $1 million. The company's retained earnings account at the end of 2008 was $750,000, and its earnings available to common stockholders of $800,000 in 2009. What is Charleston Industrial's dividend payout ratio for 2009?

P16-7 Eliza Doolittle, the chief financial officer of East West Communications Corporations, has identified $14 million worth of new capital projects that the company should invest in next year. The optimal capital structure for the company is 40% debt and 60% equity. If the expected earnings for this year are $10 million, what amount of dividend should she recommend according to residual theory?

P16-8 Use the same data given in problem 16-7. Now what would be the amount of dividends that could be paid if East West's net income for this year is:

a. $16 million?
b. $6 million?

P16-10 Jan Brady, chief accountant of Mulberry Silk Products, is trying to work out the feasibility of a 20% stock dividend. The equity section of the balance sheet follows:

Common Stock (2 Million shares, $1 Par 2000
Capital in Excess of Par 8,000
Retained Earnings 10,000
Total Common Equity 20,000

The current market price of the company's stock is $31 per share. Is it possible to apy a 20% stock dividend? Is it possible to pay a 10% stock dividend? Explain?

P16-11 Use the same data given in problem 16-10. After payment of a 10% stock dividend, what will be the expected market price of the stock? Also, show how the equity section of the balance sheet will change.

P16-12 Malea Liberty has 800,000 common stock share outstanding. It has decided to declare a 30% stock dividend. The new par value is the same as the original par value, $3. Before the declared dividend, the retained earnings account was $60,000,000 and capital in excess of par was $13,600,000. The current stock price is $40 per share. Calculate the new values for the following items:

a. Number of shares of common stock?

b. Capital in excess of par?

c. Retained earnings?

P16-13 Malea Liberty market price before the declared stock dividend was $40 per share. What would be the market price after the declared stock dividend described in the problem 16-12 (Assume the total value of the firm's stock remains the same.)

View Full Posting Details