Question

​(Stock dividends​) In the spring of​ 2016, the CFO of HTPL Distributing Company decided to distribute...

​(Stock dividends​)

In the spring of​ 2016, the CFO of HTPL Distributing Company decided to distribute a stock dividend to its shareholders.​ Specifically, the CFO proposed that the company pay 0.05 shares of stock to the holders of each share of common stock such that the holder of​ 1,000 shares of stock would receive an additional 50 shares of common stock.

a. If the firm had total net income for the year of $10,000,000 and had 20,000,000 shares of common stock outstanding before the stock​ dividend, what was the​ firm's earnings per​ share?

b. After paying the stock​ dividend, what was the​ firm's earnings per​ share?

c. If you owned​ 1,000 shares of stock before the stock​ dividend, how many dollars of earnings did the firm earn from your​ 1,000-share investment? After the stock dividend was​ paid, how many dollars of earnings did the firm earn on your larger share​ holdings? What effect would you expect from the payment of the stock dividend on your total investment in the​ firm?

a. Before the stock​ dividend, what was the​ firm's earnings per​ share?

​$nothing  

​(Round to four decimal​ places.)

b. After paying the stock​ dividend, what was the​ firm's earnings per​ share?

​$nothing  

​(Round to four decimal​ places.)

c. Which of the following statements regarding the effect of stock dividend on your​ $1,000 investment in the firm is​ true?  ​(Select the best choice​ below.)

A.The dollars of earnings the firm earns on your​ 1,000 share investment was

$500 before the stock dividend and was $500 ​after, indicating that the gain from a stock dividend is truly an illusion.

B.The dollars of earnings the firm earns on your​ 1,000 share investment was $476 before the stock dividend and was $476

​after, indicating that the gain from a stock dividend is truly an illusion.

C.The dollars of earnings the firm earns on your​ 1,000 share investment was $500 before the stock dividend and was

$476 ​after, indicating that you would be worse off from a stock dividend.

D.The dollars of earnings the firm earns on your​ 1,000 share investment was $476 before the stock dividend and was

$500 ​after, indicating that you would be better off from a stock dividend.

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