Question

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

Answer 1

Answer:

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