Question

Suppose that you own 1,000 shares of Nocash Corp. and the company is about to pay a 25% stock dividend. The stock currently sells at $100 per share. (LO17-1) a. What will be the number of shares that you hold after the stock dividend is paid? b. What will be the total value of your equity position after the stock dividend is paid? c. What will be the number of shares that you hold if the firm splits five-for-four instead of paying the stock dividend?

Answer 1

Answer:

a. 1250 shares

b. $125000

c. 1250 shares

Explanation:

A stock dividend refers to dividend payment by an entity in the form of stocks and not in cash, thereby increases the number of shares held.

Dividend Declared = 25% of $100 = $ 25 per share

Total dividend declared = $25 × 1000 shares = $25,000

Number of shares held after the stock dividend is declared = 1000 shares + $\frac{25000}{100}$ = 1250 shares

(b) Total value of equity position = $1250 shares × 100 = $125,000

(c) Number of shares held after stock split = 1000 shares × $\frac{5}{4}$ = 1250 shares