Final answer:
A stock dividend results in an increase in shares outstanding (option 3) and a decrease in the value per share
(option 2). The company's total market capitalization remains the same, and shareholders now have more shares representing the same total value.
Step-by-step explanation:
A stock dividend will result in an increase in shares outstanding but will typically lead to a decrease in the value per share. When a company issues a stock dividend, it distributes additional shares to its current shareholders proportionally to the amount of stock they currently own. Since the total equity of the company remains unchanged but the number of shares increases, the value of each individual share tends to decrease.
However, it is important to note that the stock dividend itself will not affect the total market capitalization of the company. The overall value the shareholders hold remains the same, it's just spread over more shares. Investing in companies that offer dividends can lead to a direct payment or the potential for capital gains through an increase in stock price over time.