Stock dividend and its effect [LO18-4]

Ace Products sells marked playing cards to blackjack dealers. Ithas not paid a dividend in many years, but is currentlycontemplating some kind of dividend.

The capital accounts for the firm are as follows:

Common stock (2,900,000 shares at $5 par)	$	14,500,000
Capital in excess of par*		6,000,000
Retained earnings		24,500,000
Net worth	$	45,000,000

*The increase in capital in excess of par as a result of a stockdividend is equal to the new shares created times (Market price ?Par value).

The company’s stock is selling for $50 per share. The companyhad total earnings of $14,500,000 during the year. With 2,900,000shares outstanding, earnings per share were $5. The firm has a P/Eratio of 10.

a. What adjustments would have to be made tothe capital accounts for a 10 percent stock dividend? Show the newcapital accounts. (Do not round intermediate calculations.Input your answers in dollars, not millions (e.g.$1,230,000).)

b. What adjustments would be made to EPS andthe stock price? (Assume the P/E ratio remains constant.)(Do not round intermediate calculations and round youranswers to 2 decimal places.)

c. How many shares would an investor end upwith if he or she originally had 130 shares? (Do not roundintermediate calculations and round your answer to the nearestwhole share.)

d. What is the investor's total investmentworth before and after the stock dividend if the P/E ratio remainsconstant? (Do not round intermediate calculations and roundyour answers to the nearest whole dollar.)