Final answer:
After a stock dividend of 14 percent, Murphy's, Incorporated's new market price per share will be $10.53 (option D). This is calculated by dividing the total market value of the company by the new number of shares outstanding after the dividend is issued.
Step-by-step explanation:
The question involves calculating the new market price per share after Murphy's, Incorporated declares a stock dividend of 14 percent. A stock dividend increases the number of shares held by each shareholder but does not change the overall market value of the company.
Since the dividend is issued in the form of company stock, the proportional ownership of each shareholder remains the same, but the number of shares outstanding will increase. The market value of each share will adjust accordingly. Here's how you would calculate the new price per share:
- Calculate the new total number of shares after the stock dividend. This is done by multiplying the current shares outstanding by the dividend rate in decimal form (1 + dividend rate) and then adding it to the original number of shares.
- Divide the total market value by the new total number of shares to determine the new market price per share.
To apply this process to the question, the company has 31,800 shares outstanding and is issuing a 14 percent stock dividend.
New shares to be issued: 31,800 shares * 14% = 4,452 shares
Total shares after the dividend: 31,800 shares + 4,452 shares = 36,252 shares
The total market value of the company is the market price per share multiplied by the number of shares outstanding before the dividend. Hence, total market value would be: $12 * 31,800 = $381,600.
After the dividend, the new market price per share is calculated by dividing the total market value by the new total number of shares outstanding:
New market price per share = $381,600 / 36,252 shares = $10.53
The correct answer is option D: $10.53.