Brown's Market has 15,000 shares of stock outstanding with a par value of $1 per share and a market value per share of $8.The firm just announced a stock dividend of 10 percent.What will be the market price per share after the dividend?

Question

Quizplus · Accepted Answer

Before the dividend, the market value of the stock is 15,000 shares x $8 per share = $120,000.
After the dividend, the number of shares outstanding will increase by 10% to 16,500 shares (15,000 x 0.10 = 1,500 additional shares).
Since this is a stock dividend, the par value per share remains the same. Therefore, the total par value of the stock will increase by 10% to $16,500 (15,000 x $1 x 0.10).
The total market value of the stock remains the same at $120,000 (since the company has not actually generated any additional value, it has just split the shares).
Therefore, the new market value per share will be $120,000 / 16,500 shares = $7.27 per share.

Brown's Market Has 15,000 Shares of Stock Outstanding with a Par