If the total assets of a firm are unaffected by a stock dividend,then:
A) the stock should retain the same price per share.
B) stock dividends should be preferred by corporations over cash dividends.
C) an investor's wealth should not be changed.
D) only bondholders benefit from stock dividends.

Question

Quizplus · Accepted Answer

When a stock dividend is issued, the number of shares increase while the total value of the assets remains the same. This means that the value of each share will decrease proportionally. However, because the investor holds more shares, their overall wealth does not change. Therefore, answer choice C is correct as the investor's wealth should not be changed. The other answer choices are not accurate as stock price per share can be affected by a stock dividend, stock dividends are not necessarily preferred over cash dividends, and bondholders do not benefit from stock dividends.

If the Total Assets of a Firm Are Unaffected by a Stock