HiTec is growing fast and wishes to retain all its earnings to finance future growth. Instead of a cash dividend, HiTec declares a 10% stock dividend. If the price per share of HiTec stock is $30 before the ex-dividend date, what will be the price on the ex-dividend date?

Question

Quizplus · Accepted Answer

A 10% stock dividend means that for every 100 shares owned, a shareholder receives an additional 10 shares. This does not change the total value of the company but distributes it over more shares. If the price per share was $30 before the dividend, the total value of 110 shares after the dividend would still reflect the original value of 100 shares pre-dividend. Therefore, the new price per share is calculated as the total value pre-dividend ($30 * 100 = $3000) divided by the new total number of shares (110), which equals $27.27.

HiTec Is Growing Fast and Wishes to Retain All Its