Concentric Corporation has 10 million shares of stock outstanding.Concentric's after-tax profits are $140 million and the corporation's stock is selling at a price-earnings multiple of 18,for a stock price of $252 per share.Concentric's management issues a 40% stock dividend.What is the effect on an investor who owns 100 shares of Concentric before the dividend if Concentric's price-earnings multiple remains the same after the dividend is paid?
A) The investor will own 140 shares worth $25,200.
B) The investor will own 140 shares worth $35,280.
C) The investor will own 100 shares worth $25,200.
D) The investor will own 100 shares worth $35,280.

Question

Quizplus · Accepted Answer

After a 40% stock dividend, the investor will own 140 shares (100 original shares + 40% of 100). The total value of the shares remains the same at $25,200, as the stock price adjusts to reflect the increased number of shares, maintaining the same price-earnings multiple.

Concentric Corporation Has 10 Million Shares of Stock Outstanding