Question 1Share ValuationThe board of Santova Ltd is exploring ways to expand the number of shares outstanding in an effort to reduce themarket price per share to a level that the firm considers more appealing to investors. The options under consideration are a 20% stock dividend and, alternatively, a 5-for-4 stock split. At the same time, the firm’s equity account and other per-share information are as follows:

Preferred stock0Common stock ( 100,000 shares at R1 par)100000Paid-in capital in excess of par900000

Retained earnings700000Total stockholders' equity1700000Share priceR30EPSR3,60DPSR1,08P/ER8,33a)< br />
Show the effects on the equity account, EPS and P/E ratio of a 20% of a stock dividend.

After stock 20% dividendPreferred stockCommon stock ( )[2]Paid-in capital in excess of par[2]Retained earnings[2]Total stockholders' equity0[2]Change in price[1]Net Income[1]Change in EPS[1]b) Show the effect on the equity accounts, EPS and P/E ratio of a 5-for-4 stock split.

After 5-for-4 stock splitPreferred stockCommon stock ( )[2]Paid-in capital in excess of par[2]Retained earnings[2]Total stockholders' equity0[2]Change in price[1]Change in EPS[1]Change in the number of Outstanding shares.​