Question

The company with the common equity accounts shown here has decided on a two-for-one stock split. The firm’s 36-cent-per-share cash dividend on the new (postsplit) shares represents an increase of 20 percent over last year’s dividend on the presplit stock.

Common stock ($1 par value)	$	480,000
Capital surplus		1,556,000
Retained earnings		3,880,000
Total owners’ equity	$	5,916,000

What is the new par value of the stock?

What was last year’s dividend per share?

Answer 1

Current par value (Before Split) = $1 per share

Number of share outstanding = 480,000

Company has decided  two-for-one stock split, it mean for each existing stock, company give one additional stock.

Par value after split = $1.00 / 2

= $0.50.

Par value after split is $0.50 per share and number of share outstanding become 960,000 (480,000 × 2).

b.

Dividend per share after split = $0.36.

Total Dividend = 960,000 × $0.36

= $345,600.

Total Dividnd paid after split is $345,600.

Growth rate in dividend = 20%

So, Dividend last year = $345,600 / (1 + 20%)

= $288,000.

Total Dividend last year was $288,000.

Dividend per share last year = $288,000 / 480,000

= $0.60

last year’s dividend per share was $0.60.