Question

Firm X has declared a stock dividend that pays one share of stock for every five shares owned. After the stock dividend, earnings per share will:_________a. Remain the same.b. Decline 20%.c. Decline 5%.d. Not enough information.

Answer 1

Answer:

Option (b) Decline 20%

Explanation:

Data provided in the question:

Firm X has declared a stock dividend that pays one share of stock for every five shares owned

Therefore,

The increase in number of shares

= [ 1 ÷ 5 ] × 100%

= 20%

Thus,

The earnings per share will decrease by the amount of increase in number of shares i.e decrease by 20%

Hence,

Option (b) Decline 20%