Murphy's has 10,000 shares outstanding with a par value of £1.00 per share.The market value is £8 per share.The statement of ﬁnancial position shows £32,500 in the additional paid in capital
Account, £10,000 in the ordinary equity account and £42,700 in the retained earnings account.The
ﬁrm just announced a 10% (small) stock dividend.What will the market price per share be after the
Dividend?

Question

Quizplus · Accepted Answer

A 10% stock dividend means that for every 100 shares owned, shareholders receive an additional 10 shares. This doesn't change the total value of the company but distributes the value over more shares, typically reducing the market price per share. The new share count is 11,000 (10,000 original shares + 1,000 additional shares). The total market value before the dividend is £80,000 (10,000 shares * £8). After the dividend, the market value remains the same but is spread over 11,000 shares, resulting in a new price of approximately £7.27 per share (£80,000 / 11,000 shares).

Murphy's Has 10,000 Shares Outstanding with a Par Value of £1.00