In spring of 2014, CFO of Placebo Pharmaceuticals, Inc. took a proposal to firms board of directors to distribute the non cash dividend to firm's shareholders in form of new shares of common stock. Particularily, FO proposed that company pay 0.025 shares to holders of every share of common stock such that holder of 1000 shares of stock would receive the extra 25 shares of common stock.
i. If Placebo had the total net income for year of $8,000,000 and 24,000,000 share of common stock outstanding before stock dividend, determine firms earnings per share?
ii. After paying the stock dividend, what are the firms earnings per share?
iii. if you owned 1000 shares of stock before stock dividend, how many dollars of earnings firm earned on the 1000 share investment?
iv. After stock dividend is paid, how many dollars of earnings firm earned on larger share holdings?
v. What effect would expect from payment of stock dividend on the total investment in firm?