Question

First Citizens Investments currently has 1,200,000 shares outstanding. The current market price of shares is US$120 per share. Assuming a perfect world, what will be the number of outstanding shares and share price of a 30 percent stock dividend?

Select one:

a. 1,560,000 shares outstanding; US$92.30 per share

b. 1,460,000 shares outstanding; US$77.00 per share

c. 1,500,000 shares outstanding; US$87.00 per share

d. 1,400.000 shares outstanding; US$80.00 per share

Answer 1

Given

Current Outstanding shares = 1,200,000

Current Market Price = 120$ per share

Market Capitlization = Number of outstanding shares*Current Market Price = 1200000*120 =144,000,000$

It is given that 30% stock dividend is declared = 1200000*30% = 360,000 shares

Total Number of Shares after stock dividend = 1200000+360000 = 1,560,000 shares

After stock dividend is declared the market capitalization will be same, but number of outstanding shares will increase

Share Price after Stock Dividend = Market Capitaliztion / Total number of shares after stock dividend

= 144000000/1560000

= 92.30$

Therefore option a is the correct answer.