Question

Glendale Paving currently has 120,000 shares of stock outstanding that sell for $54 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 40 percent stock dividend

Answer 1

Answer:

The new price will be $38.57.

Explanation:

The initial price of 120,000 outstanding shares is $54.

There are no market imperfections or taxes.

The firm declares a dividend of 40%.

The new share price will be

= $Initial\ price\times(\frac{1}{1+ dividend} )$

= $54\times(\frac{1}{1+0.4} )$

= $54\times\frac{1}{1.4}$

= $54\times0.71$

= $38.57$