Question

Julie owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will she own?

1) 125 shares
2) 100 shares
3) Cost basis of $25
4) Cost basis of $20

Answer 1

Julie will own 125 shares of CCC after a 25% stock dividend, and her new cost basis per share will be $20, as the original investment is distributed over the increased number of shares.

Step-by-step explanation:

When CCC declares a 25% stock dividend, Julie will now own 125 shares, as she receives an additional 25% on her 100 shares. This outcome represents an increase in the quantity of shares owned without additional cost. On the other hand, the cost basis per share will reduce to account for the new total shares owned.

Therefore, after the stock dividend, Julie's cost basis per share will be $20 because the original investment is now spread over more shares. The cost basis per share is calculated by dividing the total investment by the new number of shares (i.e., $25 x 100 shares / 125 shares = $20 per share).