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26 September, 02:40

A company that has been growing rapidly announces that it is splitting its stock 3:2 and increasing its cash dividend by 20%. Prior to the announcement, the stock was trading at $60 and the dividend yield was 10%. What will be the next dividend paid per share?

A: $1.20

Rationale: Another question that is more annoying than difficult. When the stock was trading at $60, it was paying an annual cash dividend of 10% of $60 = $6.00 per share. After the 3:2 split, for every 2 shares held, there will now be 3 shares. This is the same as 1.5:1. The new share price will be $60 / 1.5 = $40. The new annual dividend amount per share before the increase will be $6.00 / 1.5 = $4.00. If this dividend is increased by 20%, the new annual rate will be $4.80, and the new quarterly dividend payment per share will be $4.80 / 4 = $1.20

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Answers (1)
  1. 26 September, 03:10
    0
    quarterly dividend payment = $1.20 per share

    Explanation:

    given data

    splitting its stock = 3:2

    increasing cash dividend = 20%

    Stock price = $60

    Dividend yield = 10 %

    solution

    we get here first Dividend that is express as

    Dividend = Dividend yield * Market Price ... 1

    put here value and we get

    Dividend = $60 * 10%

    Dividend = $6

    and we know split ratio is 3:2

    so it mean it increase by 1.5 time

    so After Stock Split share price will be

    share price = $6 : 1.5 ... 2

    share price = $4

    and when annual dividend amount is increase = 20%

    so annual rate will be now

    annual rate per share = $4 x 120% ... 3

    annual rate per share = $4.80

    so here quarterly dividend payment will be

    quarterly dividend payment = $4.80 : 4 ... 4

    quarterly dividend payment = $1.20 per share
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