1. The management of Oodles of Noodles Inc. is contemplating a 30% stock dividend. The company...

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Finance

1. The management of Oodles of Noodles Inc. iscontemplating a 30% stock dividend. The company currently has cashof $250,000, fixed assets of $5 million, and debt of $3 million.Its net income for the most recent fiscal year was $800,000. Thecompany’s shares are currently selling for $25 per share, and ithas 1 million shares outstanding. Assume that there are no costsassociated with issuing a stock dividend.
a.   What would bethe effect of such a stock dividend on the following?
i.    Number ofsharesoutstanding                                                        (1 mark)
ii.  Earnings                                                                                                 (1 mark)
iii. Market value of cash                                                                                    (1 mark)
iv. Market value ofequity                                                                       (1 mark)
v.   Shareprice
vi. Earnings per share(EPS)
vii. Price-earnings ratio(P/E)
viii.           Shareholders’wealth
b.   If thecompany’s management would like to hold its EPS within the range of0.7?0.9, should the company go ahead with the stockdividend?                 (1 mark)
c.   If thecompany’s shareholders only care about their wealth and the P/Eratio, should the company go ahead with the stockdividend?                            (1 mark)

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3.6 Ratings (370 Votes)

In a stock dividend additional shares are issued to existing shareholder instead of distributing cash dividends a i Number of shares outstanding will increase by 30 See Answer

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1. The management of Oodles of Noodles Inc. iscontemplating a 30% stock dividend. The company currently has cashof $250,000, fixed assets of $5 million, and debt of $3 million.Its net income for the most recent fiscal year was $800,000. Thecompany’s shares are currently selling for $25 per share, and ithas 1 million shares outstanding. Assume that there are no costsassociated with issuing a stock dividend. a. What would bethe effect of such a stock dividend on the following?i. Number ofsharesoutstanding (1 mark)ii. Earnings (1 mark)iii. Market value of cash (1 mark)iv. Market value ofequity (1 mark)v. Shareprice vi. Earnings per share(EPS) vii. Price-earnings ratio(P/E) viii. Shareholders’wealth b. If thecompany’s management would like to hold its EPS within the range of0.7?0.9, should the company go ahead with the stockdividend? (1 mark)c. If thecompany’s shareholders only care about their wealth and the P/Eratio, should the company go ahead with the stockdividend? (1 mark)