Asked by katie sofia on Apr 26, 2024
Verified
A firm has a market value equal to its book value. Currently, the firm has excess cash of $300 and other assets of $8,700. Equity is worth $9,000. The firm has 375 shares of stock outstanding and net income of $800. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after the dividend is paid?
A) $1.09
B) $2.13
C) $2.67
D) $3.03
E) $3.91
Cash Dividend
A payment made by a corporation to its shareholders, usually in the form of cash.
Excess Cash
Funds that exceed the necessary operating and investment cash required by a business, often indicating potential for dividends, buybacks, or investments.
- Compute dividends and identify the impacts of dividend strategies on corporate metrics.
- Determine the earnings per share (EPS) prior to and subsequent to corporate maneuvers such as dividends, repurchases, and splits.
Verified Answer
JS
Jamal SaundersApr 28, 2024
Final Answer :
B
Explanation :
The earnings per share (EPS) calculation is not affected by the payment of a dividend. EPS is calculated as net income divided by the number of shares outstanding. Given that the net income is $800 and there are 375 shares outstanding, the EPS is $800 / 375 = $2.13.
Learning Objectives
- Compute dividends and identify the impacts of dividend strategies on corporate metrics.
- Determine the earnings per share (EPS) prior to and subsequent to corporate maneuvers such as dividends, repurchases, and splits.