Question

Excellent Corporation has 10,000 shares outstanding and a share currently sells for $40 per share. Excellent is short of cash, so they have decided to issue a 12% stock dividend. Angela owns 300 shares of Excellent.

What is the value of Angela’s investment in Excellent BEFORE the dividend?_________

How many shares will Angela own AFTER the dividend? _____________

What will each share be worth AFTER the dividend? ____________

What will be the total value of Angela’s investment AFTER the dividend? ___________

Answer 1

a) value of angela's investment in excellent before dividend is 40* 300 = $ 12,000

b) Angela will have 12% more stocks over current number of shares.

which will be 300 + 12% of 300 = 300 + 36 = 336 shares

c) Share price will decrease as the overall amount is same but number of shares have increased.

the share price will be 40/1.12 as for every one share 12% additional shares have been issued. Hence new share price will be $ 35.714

d) total value of angela investment after dividend is $ 35.714 * 336 = $ 12000