Author Question: Cyberco Corporation has 5 million shares of stock outstanding. Cyberco's after-tax profits are 15 ... (Read 48 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?

The ratio of hydrogen atoms to oxygen in water (H2O) is 2:1.

Did you know?

The cure for trichomoniasis is easy as long as the patient does not drink alcoholic beverages for 24 hours. Just a single dose of medication is needed to rid the body of the disease. However, without proper precautions, an individual may contract the disease repeatedly. In fact, most people develop trichomoniasis again within three months of their last treatment.

Did you know?

Patients who have been on total parenteral nutrition for more than a few days may need to have foods gradually reintroduced to give the digestive tract time to start working again.

Did you know?

In 1885, the Lloyd Manufacturing Company of Albany, New York, promoted and sold "Cocaine Toothache Drops" at 15 cents per bottle! In 1914, the Harrison Narcotic Act brought the sale and distribution of this drug under federal control.

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.

For a complete list of videos, visit our video library