Question

Stock dividend: 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. c. What proportion of the firm will Sarah own after the stock dividend? Explain your answer.

Answer 1

We know that

• Sarah holds 400 shares.

,

• The firm has 40,000 shares.

,

• The recent earnings are $80,000.

,

• The stock has been selling for $22.

,

• The firm intends to pay 10% of the dividend.

To find the proportion, we just have to divide the number of shares Sarah holds and the total number of shares the firm has. Take into account it is after the stock dividend. Observe that 10% of 400 is 40, so we have to divide 440 by 40,000.

`(440)/(40,000)=0.011`

Then, we multiply by 100 to express in percentage.

`0.011\cdot100=1.1`

Hence, the proportion is 1.1%.