Question

The Montauk Company has a dividend reinvestment plan in which shareholders owning 27% of its common stock participate. Last year the firm's EPS was $4.20, and its payout ratio was 60%. There are 2 million shares of common stock outstanding. How much new capital did Montauk raise through the reinvestment program?

Answer 1

Answer:

Total capital gain will be $1360800

Explanation:

We have given EPS = $4.20

Total number of shares = 2000000

So total Net Income = EPS x No. of shares = $4.20 x 2000000 = $8,400,000

Dividend = 60% x 8,400,000 = $5040000

25% shareholder participated in dividend reinvestment

So Capital raised = 27% x $5040000 = $1360800

So total capital gain will be $1360800