Question

Investor Sarah Warren currently holds 400 shares of Nutri-Foods. The firm has 40,000 shares outstanding. The firm most recently had earnings available for common stockholders of $80,000, and its stock has been selling for $22 per share. The firm intends to retain its earnings and pay a 10% stock dividend. what effect, if any, the payment of stock dividends will have on Sarah’s share of the ownership and earnings of Nutri-Foods

Answer 1

Given that Sarah holds 400 shares of Nutri-Foods, this would change only if she decide to sell some shares. In other words, Sarah's proportion of ownership of the stocks of Nutri-Foods will not change, also, her earnings will change only if the company changes the ratio of earnings.

Hence, the payments of stock dividends will remain the same at least the company changes the percentage of stock dividend.