Economics Paper

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Nancy Lau currently holds 10,000 shares in the Icicle Company that supplies air conditioning systems. Icicle has issued a total of 250,000 ordinary shares and no preference shares are issued. The firm most recently had earnings available for ordinary shareholders of $750,000, and its ordinary shares have been selling for $34.10 per share. The firm intends to retain these earnings and pay a 10 per cent share dividend.

(a) What is the firm’s current earnings per share? (b) What proportion of the firm does Nancy Lau currently own? (c) What proportion of the firm will Nancy Lau own after the share dividend? (d) At what market price would you expect the firm’s ordinary shares to sell after the share dividend?