Question

Murphy's, Incorporated, has 31,700 shares of stock outstanding with a par value of $1 per share. The market value is $10 per share. The balance sheet shows $87,350 in the capital in excess of par account, $31,700 in the common stock account, and $142,950 in the retained earnings account. The firm just announced a stock dividend of 12 percent. What will the market price per share be after the dividend?


Multiple Choice

$8.93


$9.82


$10.82


$10.00


$9.93

Answer 1

To determine the market price per share after the 12% stock dividend, we need to understand how a stock dividend works.

1. **Calculate the total shares after the stock dividend:**
- Currently, Murphy's, Incorporated has 31,700 shares outstanding.
- With a 12% stock dividend:
\[
\text{New shares} = 31,700 \times 0.12 = 3,804
\]
- Total shares after the dividend:
\[
\text{Total shares} = 31,700 + 3,804 = 35,504
\]

2. **Calculate the current market capitalization:**
- The market price per share before the dividend is $10.
- Therefore, the market capitalization is:
\[
\text{Market Capitalization} = 31,700 \times 10 = 317,000
\]

3. **Determine the new market price per share after the dividend:**
- The total market capitalization does not change with a stock dividend; it remains $317,000.
- New market price per share after the dividend:
\[
\text{New market price} = \frac{\text{Total market capitalization}}{\text{Total shares}} = \frac{317,000}{35,504}
\]

Calculating this gives:
\[
\text{New market price} \approx 8.93
\]

Thus, the market price per share after the dividend is approximately **$8.93**.

The correct answer is **$8.93**.