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Effect of stock dividend for Firm X

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Firm X has declared a stock dividend that pays one share of stock for every seven shares owned. After the stock dividend, earnings per share will

a) remain the same
b) decline 14.3%
c) decline 7%
d) not enough information

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Solution Summary

The solution explains the effects of a stock dividend to the corporation and to the shareholders. The example shows how to calculate the change. The correct answer is provided. Also included in the explanation is the effects on EPS when companies buy back their shares (stock repurchase).

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A stock dividend does not change total capital in dollar amounts, but it does change the number of shares outstanding. Because the number of shares becomes larger, the ...

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