Grabill Aerospace Company has just declared a 15% stock dividend. Immediately prior to the stock dividend, the stock was selling for $23 and had a P/E ratio of 14. Calculate the post-stock dividend price of Grabill's stock.
A) $26.45
B) $20.00
C) $26.22
D) $20.18

Question

Quizplus · Accepted Answer

A stock dividend increases the number of shares outstanding, which typically reduces the stock price proportionally. A 15% stock dividend means the stock price should decrease by approximately 15%. Thus, $23 * (1 - 0.15) = $19.55, but since the closest option is $20.00, that is the correct choice.

Grabill Aerospace Company Has Just Declared a 15% Stock Dividend