Security Data Company has outstanding 50,000 shares of
common stock currently selling at $40 per share. The firm most recently had earnings
available for common stockholders of $120,000, but it has decided to retain
these funds and is considering either a 5% or a 10% stock dividend in lieu of a cash
a. Determine the firm’s current earnings per share.
b. If Sam Waller currently owns 500 shares of the firm’s stock, determine his proportion
of ownership currently and under each of the proposed stock dividend
plans. Explain your findings.
c. Calculate and explain the market price per share under each of the stock dividend
d. For each of the proposed stock dividends, calculate the earnings per share after
payment of the stock dividend.
e. What is the value of Sam’s holdings under each of the plans? Explain.
f. Should Sam have any preference with respect to the proposed stock dividends?
Why or why not?