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Should the company go ahead with the stock dividend

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The management of Oodles of Noodles Inc. is contemplating a 30% stock dividend. The company currently has cash of $250,000, fixed assets of $5 million, and debt of $3 million. Its net income for the most recent fiscal year was $800,000. The company's shares are currently selling for $25 per share, and it has 1 million shares outstanding. Assume that there are no costs associated with issuing a stock dividend.

a. What would be the effect of such a stock dividend on the following?

i. Number of shares outstanding

ii. Earnings

iii. Market value of cash

iv. Market value of equity

v. Share price

vi. Earnings per share (EPS)

vii. Price-earnings ratio (P/E)

viii. Shareholders' wealth

b. If the company's management would like to hold its EPS within the range of 0.7-0.9, should the company go ahead with the stock dividend?

c. If the company's shareholders only care about their wealth and the P/E ratio, should the company go ahead with the stock dividend?

Reference no: EM132371612

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