Answer:
The multiple choices:
Earnings per share will remain the same since a stock dividend does not create an expense.
Earnings per share will increase because the dividend increases the value of the company.
Earnings per share will decrease because the number of shares outstanding will go up.
The impact cannot be determined without additional information on the new price per share.
The correct option is earnings per share will decrease because the number of shares outstanding will go up.
Explanation:
Initial EPS=earnings attributable to common stock/average weighted number of common stock
earnings attributable to common stock is $25,000,000
average weighted number of common stock is 10,000,000
Initial EPS=$25,000,000/10,000,000
=$2.5
EPS with 10% stock dividend :
average weighted number of common stock=10,000,000*(1+10%)
average weighted number of common stock=10,000,000*(1+0.1)
average weighted number of common stock=11,00,000
EPS with 10% stock dividend=$25,000,000/11,000,000
=$2.27
EPS reduced from $2.5 to $2.27 due to 10% stock dividend as there are more shares than previously.
