You own 10,000 shares of a firm that has 50 million shares outstanding. The market price per share is $20. If the firm declares a 10% stock dividend, how many shares will you own after
The dividend is paid, and what will the market price per share be?

Question

Quizplus · Accepted Answer

A 10% stock dividend means that for every 10 shares owned, the shareholder will receive an additional share. So, for 10,000 shares owned, the shareholder will receive 1,000 additional shares.

The new total number of shares owned will be 11,000.

The new total number of outstanding shares will be 50,000,000 + 5,000,000 (10% of 50,000,000) = 55,000,000.

To calculate the new market price per share, we can use the formula:

New market price per share = (Old market price per share * Old number of shares) / New number of shares

= ($20 * 50,000,000) / 55,000,000

= $18.18

Therefore, the shareholder will own 11,000 shares at $18.18 per share after the dividend is paid. Choice B is the correct answer.

You Own 10,000 Shares of a Firm That Has 50