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

The new price will be $38.57.

Step-by-step 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*((1)/(1+ dividend) )`

=
`54*((1)/(1+0.4) )`

=
`54*(1)/(1.4)`

=
`54*0.71`

=
`$38.57`