Assume that Harris,Inc.has 10,000,000 common shares outstanding that have a par value of $2 per share.The stock is currently trading for $30 per share.The firm reported a net profit after-tax of $25,000,000.All else equal,what will happen to earnings per share if the company issues a 10% stock dividend?

Question

Quizplus · Accepted Answer

A 10% stock dividend means that the company will issue 1,000,000 new common shares to shareholders. This will increase the number of shares outstanding to 11,000,000, and thus dilute the earnings per share. The net profit after-tax remains the same, so the earnings per share will decrease since they are now spread out over more shares.

Assume That Harris,Inc