Assignment 3 Investments

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1.

a)

b)

c)

d)

A firm has the following items on its balance sheet: Cash $20,000,000 inventory 134,000,000 Notes Payable to bank 31,500,000 common stock ($10 par; 1,000,000) 10,000,000 Retained earnings 98,500,000 Describe how each of these account would appear after: A cash dividend of $1 per share Cash will decrease by $1,000,000. Retained earnings will decrease by $1,000,000. All other accounts are not affected. A 10 percent stock dividend (fair market value of stock is $13 per share) Common stock will increase by $100,000 (1,000,000 x 10% x $1) Retained earnings will decrease by $1,300,000 (1,000,000 x 10% x $13) All other accounts are not affected. A 3-for-1 stock splits All accounts are not affected. However, number of shares will increase to 3,000,000 while par value per share will decrease to $3.33. A 1 for 2 reverse stock split All accounts are not affected. However, number of shares will decrease to 500,000 while par value per share will increase to $20. A company whose stock stock is selling for $60 has the following balance sheet: Assets Liabilities Preferred stock Common stock ($12 par; 100,000 shares outstanding) Paid-in capital Retained earnings Construct a new balance sheet showing the effects of 3 for 1 stock split, What is the new price of the stock? Assets

2.

30,000,000 14,000,000 1,000,000 1,200,000 1,800,000 12,000,000

a)

$ 30,000,000

Total assets

$ 30,000,000

A stock split does not affect the accounts in the balance sheet. However, shares outstanding and par value per share will change. The new stock price will be $20 per share ($60 / 3) Construct a new balance sheet showing the effects of a 10 percent stock dividend. What will be the approximate new price of the stock? Assets $ 30,000,000

b)

Total assets

$ 30,000,000

A stock dividend will affect common stock, paid-in capital and retained earnings account. However, total stockholders equity will not be affected.

Estimated stock price =...
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