XYZ Corp.has 1,000 shares outstanding and retained earnings of $25,000.Theoretically, what would you expect to happen to the price of their stock, currently selling for $30 per share, if a 25% stock dividend is declared?
A)price should increase to $44.00 per share.
B)price should increase to $37.50 per share.
C)price should decrease to $24.00 per share.
D)nothing; price should remain at $30.00.

Question

Quizplus · Accepted Answer

A stock dividend redistributes retained earnings to increase the number of shares outstanding without changing the total market value of the company. With a 25% stock dividend, the number of shares increases to 1,250 (1,000 * 1.25). If the total market value remains the same, the price per share adjusts to maintain this value. Therefore, the new price per share would be the total market value (1,000 shares * $30/share) divided by the new number of shares (1,250), resulting in $24.00 per share.

XYZ CorpHas 1,000 Shares Outstanding and Retained Earnings of $25,000