Ted Tech Inc. is offering a 10% stock dividend. The firm currently has 200,000 shares outstanding and after-tax
profits of $800,000. The current price of the stock is $48.
a. Calculate the new earnings per share.
b. What is the original price/earnings multiple?
c. Providing that the price/earnings multiple stays the same, what will the new stock price be after the stock
dividend?
a. EPS = $800,000/200,000 (1.10)
EPS = $3.636
b. price/earnings multiple = $48/$4 = 12
c. 12 × $3.636 = $43.63
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