Sadaplast has just declared a 25% stock dividend. The annual dividend, before the stock dividend was declared, was $1.00. Sadaplast intends to pay a dividend of $1.05 per share after the stock dividend is paid. What is the percentage increase in the cash dividend that will accompany the stock dividend?
A) 6.25%
B) 26.25%
C) 31.25%
D) 5.00%

Question

Quizplus · Accepted Answer

The original dividend was $1.00. After a 25% stock dividend, the number of shares increases by 25%, so the equivalent dividend per original share is $1.05 / 1.25 = $0.84. The percentage increase from $0.84 to $1.05 is (($1.05 - $0.84) / $0.84) * 100% = 25%. However, since the question asks for the increase relative to the original $1.00, the increase is (($1.05 - $1.00) / $1.00) * 100% = 5%. But the correct interpretation is the increase in cash dividend per original share, which is 31.25%.

Sadaplast Has Just Declared a 25% Stock Dividend