Asked by joshy dallas on May 06, 2024
Verified
Rocky Ground Camping Supply Inc. has 200,000 shares of stock outstanding each with a market value of $15. In addition, on the balance sheet there is common stock of $1,950,000 and retained earnings of $1,450,000. Suppose the firm declares a 20% stock dividend. What is the stock's new price per share? Assume there are no taxes or transaction costs.
A) $7.50
B) $9.25
C) $10.00
D) $12.50
E) $13.25
Stock Dividend
A dividend payment made in the form of additional shares of the company's stock, rather than cash.
Market Value
The current value of an asset or company based on the price at which it can be sold in the marketplace.
Common Stock
A type of equity security that represents ownership in a corporation, giving shareholders voting rights and a claim on profits.
- Delve into the impact of stock splits and stock dividends on the financial equity and per share assessments of a company.
- Study the effects of share buyback programs on earnings per share and the market price of the stock.
Verified Answer
SL
Smarika LamsalMay 09, 2024
Final Answer :
D
Explanation :
The new price per share after a 20% stock dividend is calculated by dividing the total market value of the stock before the dividend by the new total number of shares. The total market value before the dividend is 200,000 shares * $15/share = $3,000,000. A 20% stock dividend means the number of shares increases by 20%, so the new number of shares is 200,000 * 1.20 = 240,000 shares. The new price per share is $3,000,000 / 240,000 shares = $12.50.
Learning Objectives
- Delve into the impact of stock splits and stock dividends on the financial equity and per share assessments of a company.
- Study the effects of share buyback programs on earnings per share and the market price of the stock.