Author Question: Cyberco Corporation has 5 million shares of stock outstanding. Cyberco's after-tax profits are 15 ... (Read 56 times)

Bob-Dole

  • Hero Member
  • *****
  • Posts: 547
Cyberco Corporation has 5 million shares of stock outstanding. Cyberco's after-tax profits are 15 million and
  the corporation's stock is selling at a price-earnings multiple of 10, for a stock price of 30 per share.
 
  Cyberco
  management issues a 25 stock dividend.
  a. Calculate Cyberco's earnings per share before and after the stock dividend.
  b. Suppose an investor owns 100 shares of Cyberco before the stock dividend. Use the price earnings multiple
  to estimate the value of the investor's holdings both before and after the dividend.
  c. Comment on the results of the stock dividend for current shareholders.

Question 2

The default risk premium for U.S. corporate bonds was greater in the last 50 years of the 20th century than in the first decade of the 21st century.
 
  Indicate whether the statement is true or false.


harveenkau8139

  • Sr. Member
  • ****
  • Posts: 304
Answer to Question 1

a.
Before: EPS = 15 million /52 million shares = 3 per share
After: EPS = 15 million /6.255 million shares = 2.4 per share
b.
Price of the stock before the stock dividend = P/E  EPS = 10  3 = 30
Price of the stock after the stock dividend = P/E  EPS = 10  2.4 = 24
Value of investor's holdings before the stock dividend: 100 shares  30 = 3,000
Value of investor's holdings after the stock dividend: 125 shares  24 = 3,000
c.
The stock dividend did not change the value of the shareholder's investment. This will be true as long as the stock split
does not change investors' estimates of future performance.

Answer to Question 2

Answer: FALSE
Explanation: about 0.47 vs 1.39



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

In most climates, 8 to 10 glasses of water per day is recommended for adults. The best indicator for adequate fluid intake is frequent, clear urination.

Did you know?

Calcitonin is a naturally occurring hormone. In women who are at least 5 years beyond menopause, it slows bone loss and increases spinal bone density.

Did you know?

Of the estimated 2 million heroin users in the United States, 600,000–800,000 are considered hardcore addicts. Heroin addiction is considered to be one of the hardest addictions to recover from.

Did you know?

There used to be a metric calendar, as well as metric clocks. The metric calendar, or "French Republican Calendar" divided the year into 12 months, but each month was divided into three 10-day weeks. Each day had 10 decimal hours. Each hour had 100 decimal minutes. Due to lack of popularity, the metric clocks and calendars were ended in 1795, three years after they had been first marketed.

Did you know?

More than nineteen million Americans carry the factor V gene that causes blood clots, pulmonary embolism, and heart disease.

For a complete list of videos, visit our video library