First off, happy memorial day. I’m sure for many of us, this will be the first of many memorial days we will be sacrificing for this exam.
The quesiton asks for the company’s weighted average number of shares outstanding at the end of the year.
January - 50,000 shares issues and outstanding at beignning of year
April - 5% stock dividend
October - 10% stock dividend
My question is, why do we not get each dividend amount in april and then *(9/12) and *(3/12)?
Instead you just multiple the 50,000*1.05, and then the total by 1.10.
Think of them as red shares, green shares, and blue shares.
On 1/1 you had 50,000 red shares outstanding
On 4/1, you took back all of the red shares and handed out 52,500 green shares.
There are no more red shares. There are only green shares – 52,500 of them – and you treat them as if they’ve been around the whole time.
On 10/1, you took back all of the green shares and handed out 57,750 blue shares.
There are no more red shares and there are no more green shares. There are only blue shares – 57,750 of them – and you treat them as if they’ve been around the whole time.
This makes sense. I think im just mixing up when a ocmpany issues new shares and when they declare a stock dividend.
So lets say 3,000,000 shares are outstanding in the beginning of the year
On march 1, the company issues 100,000 new shares of common stock
On july 1, the board of directors declares a 15% stock dividend.
What would be the best way to approach this? The stock dividend you would need to do twice right? Once for the beginning balance, and one of the new issued shares? when would you multiple by partial periods?
First, draw a timeline.
Write 3,000,000 on 1/1, and 100,000 on 3/1.
On 7/1, write 15% dividend, then cross out the 3,000,000 on 1/1 and replace it with 3,450,000, and cross out the 100,000 on 3/1 and replace it with 115,000.
Carry on from there.
Whenever there’s a stock dividend, split, or reverse split, cross out all of the earlier numbers and replace them with new numbers (according to whatever the factor is).