5 Your companys common shares price is 80 and 300000 shares

5.   Your company’s common shares price is $80, and 300,000 shares are outstanding. The firm issues a 20% stock dividend.

a.   Calculate the new total number of shares outstanding.

b.   Estimate the new common share price.

Solution

Stock Dividend: A dividend made in the form of issue of additional shares is called stock dividend. But the market value of shares remains same before and after stock dividend.

a.   Calculation of new total number of shares outstanding.

old no. of shares + shares issued as stock dividend

300,000 + (300,000*20%)

300,000 + 60,000

360,000

b.   Estimatation of new common share price.

Market Value before stock dividend = Market Value after stock dividend

Market Value before stock dividend = 300,000 * 80 = 24,000,000

new common share price = Market value / new no. of shares

= 24,000,000 / 360,000

= $66.67