Cyberco Corporation Has 5 Million Shares of Stock Outstanding

Essay

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.