Multiple Choice
A feature common to both stock splits and stock dividends is:
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12. Stockholders' Equity
Stock Dividends
Multiple Choice
You own 200 shares of the 100,000 outstanding shares of Big Company. Big Company declared a stock dividend of 5% when the market price per share was \$55. Which of the following is true?
A
Your ownership percentage in Big Company is larger than it was before the stock dividend
B
Your ownership percentage in Big Company is smaller than it was before the stock dividend
C
Your ownership percentage in Big Company is equal to what it was before the stock dividend
D
The number of shares you own in Big Company is equal to what it was before the stock dividend
Verified step by step guidance1
Understand the concept of a stock dividend: A stock dividend is a payment made in the form of additional shares, rather than a cash payout. It increases the number of shares outstanding but does not change the proportionate ownership of existing shareholders.
Calculate the number of new shares issued: A 5% stock dividend means that for every 100 shares, 5 additional shares are issued. For 100,000 outstanding shares, the company will issue 5,000 new shares (100,000 * 0.05).
Determine the new total number of shares: Add the new shares to the existing shares to find the new total number of shares outstanding. This will be 100,000 + 5,000 = 105,000 shares.
Calculate your new number of shares: As a shareholder of 200 shares, you will receive 5% more shares. This means you will receive 200 * 0.05 = 10 additional shares, making your total 210 shares.
Analyze the ownership percentage: Before the dividend, your ownership percentage was (200 / 100,000) * 100%. After the dividend, your ownership percentage is (210 / 105,000) * 100%. Since both percentages are equal, your ownership percentage remains unchanged.
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