In the spring of 2014 the CFO of Placebo? Pharmaceuticals, Inc. took a proposal to the? firm's board of directors to distribute a noncash dividend to the? firm's shareholders in the form of new shares of common stock. ? Specifically, the CFO proposed that the company pay 0.02 shares of stock to the holders of each share of common stock such that the holder of? 1,000 shares of stock would receive an additional 20 shares of common stock.
a. If Placebo had total net income for the year of $8,000,000 and 21,000,000 shares of common stock outstanding before the stock? dividend, what are the? firm's earnings per? share?
b. After paying the stock? dividend, what are the? firm's earnings per? share?
c. If you owned? 1,000 shares of stock before the stock? dividend, how many dollars of earnings did the firm earn on your? 1,000 share? investment? After the stock dividend is? paid, how many dollars of earnings did the firm earn on your larger share? holdings? What effect would you expect from the payment of the stock dividend on your total investment in the? firm?