Tangshan Mining has 100,000 shares outstanding and just declared a 20% stock dividend. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock dividend, the firm's shares should trade at ________ per share.
A) $40.00
B) $41.66
C) $46.33
D) remain unchanged

Question

Quizplus · Accepted Answer

After the stock dividend, the number of shares outstanding will increase by 20%, or 20,000 shares (100,000 x 0.2 = 20,000). The total value of the company remains the same (since it's just a distribution of shares), but it is now divided among a larger number of shares. Therefore, the price per share will decrease proportionately.

The new number of shares outstanding will be 120,000 (100,000 + 20,000), and the new price per share will be:

$50.00 / 1.20 = $41.66 per share.

Tangshan Mining Has 100,000 Shares Outstanding and Just Declared a 20