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Part 1

FCFFCF 

Co. has 

17 comma 00017,000 

shares outstanding and a total market value of 

$ 1$1 

​million, 

$ 310 comma 000$310,000 

of which is debt and the other 

$ 690 comma 000$690,000 

is equity. It is planning a 

10 %10% 

stock dividend.

**a.** What is the stock price before the​ dividend, and what will it be after the​ dividend?

**b.** If an investor owns 

2 comma 7502,750 

shares before the​ dividend, what will be the total value of her investment in 

FCFFCF 

before and after the​ dividend?

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Part 1

**a.** What is the stock price before the dividend and what will it be after the​ dividend?

The stock price before the dividend is 

​$enter your response here. 

 ​(Round to the nearest​ cent.)

### Part 1a: Stock Price Before and After the Dividend

To solve this, we need to first calculate the stock price before the dividend and then determine the stock price after the stock dividend.

#### **Step 1: Find the stock price before the dividend**
The total equity value of the company is given as **$690,000** and the number of shares outstanding is **17,000**. The stock price is calculated by dividing the total equity value by the number of shares:

\[
\text{Stock price before dividend} = \frac{\text{Total equity value}}{\text{Number of shares}} = \frac{690,000}{17,000}
\]

Let me calculate this for you.

\[
\text{Stock price before dividend} = \frac{690,000}{17,000} = 40.59
\]

So, the stock price before the dividend is **$40.59**.

#### **Step 2: Calculate stock price after the dividend**

The company is planning a **10% stock dividend**, which means the number of shares will increase by 10%. So, the new number of shares after the stock dividend will be:

\[
\text{New number of shares} = \text{Old number of shares} \times (1 + 0.10) = 17,000 \times 1.10 = 18,700
\]

Now, the total equity remains the same at **$690,000**, so the new stock price will be:

\[
\text{Stock price after dividend} = \frac{\text{Total equity value}}{\text{New number of shares}} = \frac{690,000}{18,700}
\]

Let me calculate this.

\[
\text{Stock price after dividend} = \frac{690,000}{18,700} = 36.90
\]

So, the stock price after the dividend will be **$36.90**.

---

### Part 1b: Value of Investor's Shares Before and After the Dividend

#### **Step 1: Value of the investment before the dividend**
The investor owns **2,750 shares** before the dividend. The value of her investment before the dividend is calculated by multiplying the number of shares by the stock price before the dividend:

\[
\text{Value before dividend} = \text{Number of shares} \times \text{Stock price before dividend} = 2,750 \times 40.59 = 111,622.50
\]

So, the value of her investment before the dividend is **$111,622.50**.

#### **Step 2: Value of the investment after the dividend**
After the stock dividend, the investor will receive **10% more shares**, so the new number of shares she owns will be:

\[
\text{New number of shares} = \text{Old number of shares} \times (1 + 0.10) = 2,750 \times 1.10 = 3,025
\]

The stock price after the dividend is **$36.90**, so the value of her investment after the dividend will be:

\[
\text{Value after dividend} = \text{New number of shares} \times \text{Stock price after dividend} = 3,025 \times 36.90 = 111,622.50
\]

So, the value of her investment after the dividend is still **$111,622.50**.

---

### Final Answer Summary:
- **Stock price before the dividend:** $40.59
- **Stock price after the dividend:** $36.90
- **Value of investment before the dividend:** $111,622.50
- **Value of investment after the dividend:** $111,622.50

Would you like more details or have any questions?

---

**Follow-up Questions:**
1. How does a stock dividend affect the overall value of the company?
2. What is the difference between a stock dividend and a cash dividend?
3. How do stock dividends impact the earnings per share (EPS)?
4. How can stock dividends benefit long-term investors?
5. What would happen if the company announced a reverse stock split instead?

**Tip:** Stock dividends increase the number of shares but do not change the total value of the investment. They simply distribute the ownership across more shares.

FCFFCF Co. has 17,000 shares outstanding and a total market value of $1 million, $310,000 of which is debt and the other $690,000 is equity. It is planning a 10% stock dividend.

a. What is the stock price before the dividend, and what will it be after the dividend?

b. If an investor owns 2,750 shares before the dividend, what will be the total value of her investment in FCFFCF before and after the dividend?

Learn how to calculate the stock price before and after a 10% stock dividend for FCFFCF Co. The total equity value is $690,000 with 17,000 shares outstanding. Find out the impact on stock price and investor's shares using step-by-step formulas. Suitable for finance students.

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