Question

A company at present has 250,000 shares of stock outstanding that sell for $15 per share. Assuming no market imperfection or tax effects exist.

if the company has 10% stock dividend announcement?

a) Determine the new number of shares outstanding after the dividend announcement?

b) what is the new stock price per share after the stock dividend announcement?

Answer 1

Stock dividend is a type of dividend which increases the total number of shares as payment are made in the form of shares than cash.

A. new number of shares outstanding after the dividend announcement= Number of shares before plus in addition of new shares

= 250000(1+.10)

=250000*1.1

= 275000 shares

B. New stock price per share after the stock dividend announcement=

The overall market capitalisation of company donot change after issue of new stock as stock dividend

so it will be equal to old market capitalisation value.

Let the new stock price be X

SO, (250000*15)= (275000*X)

(3750000/275000)= X

SO X= $ 13.6363

SO, value of new shares will be $13.6363