Question

Samsonite has declared a 90% stock dividend. At the time of the declaration, Samsonite's stock was selling for $250 per share. If Samsonite's total market value remains unchanged by the stock dividend, then what will the new stock price be once the dividend has been enacted?

Answer 1

When Samsonite declares a 90% stock dividend and its market value remains unchanged, the new stock price will be $131.58 per share.

Step-by-step explanation:

When a company declares a stock dividend, it is essentially giving existing shareholders additional shares of stock instead of cash. In this case, Samsonite has declared a 90% stock dividend, which means that for every 10 shares of stock owned, shareholders will receive an additional 9 shares.

To calculate the new stock price after the dividend has been enacted, we can first determine the total number of shares after the dividend by multiplying the existing number of shares by 1.9 (10 shares + 9 shares). Since the total market value remains unchanged, we can divide the market value before the dividend by the total number of shares after the dividend to find the new stock price.

Let's assume Samsonite's total market value before the dividend was $250 per share * 10 shares = $2500. After the dividend, the total number of shares is 10 shares + 9 shares = 19 shares. Therefore, the new stock price will be $2500 / 19 shares = $131.58 per share.

Answer 2

$131.58

Step-by-step explanation:

The computation of the new stock price is shown below:

= Selling price of stock per share ÷ current number of shares

= $250 ÷ 1.90

= $131.58

Since the 90% dividend is declared. It means for each share 90% dividend is declared so after stock dividend, the number of shares would be

= 1 + 90%

= 1 + 0.9

= 1.9

We simply divide the selling price by the current number of shares