Health Systems Incorporated is considering a 15 percent stock dividend. The capital accounts are as follows:
Common stock (5,000,000 shares at $10 par)$ 50,000,000Capital in excess of par*35,000,000Retained earnings55,000,000Net worth$ 140,000,000
*The increase in capital in excess of par as a result of a stock dividend is equal to the shares created times (Market price − Par value).
The company’s stock is selling for $48 per share. The company had total earnings of $12,000,000 with 5,000,000 shares outstanding and earnings per share were $2.40. The firm has a P/E ratio of 20. Under the scenario described in part e, is the investor better off