Suppose that you own 2,400 shares of Nocash Corp. and the company is about to pa

Question

Suppose that you own 2,400 shares of Nocash Corp. and the company is about to pay a 25% stock dividend. The stock currently sells at $115 per share.

What will be the number of shares that you hold after the stock dividend is paid? (Do not round intermediate calculations.)

What will be the total value of your equity position after the stock dividend is paid? (Do not round intermediate calculations.)

What will be the number of shares that you hold if the firm splits five for four instead of paying the stock dividend?

What will be the number of shares that you hold after the stock dividend is paid? (Do not round intermediate calculations.)

Explanation / Answer

Initial Number of shares= 2400 , stock dividend=d=25%=.25, Current selling price of stock=$115

a) New shares given as dividend=d*Initial Number of shares=.25*2400=600

Thus total  number of shares that you hold after the stock dividend is paid= Initial Number of shares+New shares given as dividend=2400 +600=3000

b)  the total value of your equity position after the stock dividend is paid=total number of shares that you hold after the stock dividend is paid*Current selling price of stock=$3000*115=$345000

c) If the firm splits five for four instead of paying the stock dividend, The number of shares becomes 5/4 times Initial Number of shares i.e for every 4 share you hold firm is giving you 5 new shares of equity.

=>Thus total  number of shares that you hold after the splits five for four= Initial Number of shares*(5/4)= 2400*(5/4)= 600*5=3000.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.