Question

Stock Dividend and Cash Dividend

On January 1, 2015, Cozumel Company had 100,000 shares of $0. solve50 par value common stock outstanding. solve The market value of Cozumel’s common stock was $18 per share. solve Cozumel’s Retained Earnings balance on January 1 was $460,000. solve During 2014, Cozumel had declared and paid cash dividends of $0. solve75 per share. solve Net income for 2015 is expected to be $130,000. solve Cozumel has a large loan from McGraw Bank; part of the loan agreement stipulates that Cozumel must maintain a minimum Retained Earnings balance of $350,000. solve

Cozumel’s board of directors is debating whether to declare a stock dividend in addition to its $0. solve75 per share annual cash dividend. solve Three proposals have been presented: (1) no stock dividend, (2) a 10% stock dividend, and (3) a 25% stock dividend. solve

Instructions: As a shareholder in Cozumel Company, which of the three proposals do you favor? solve Support your answer. solve