weighted avg nr of shares with stock divi

Hi guys

Just wondering if you think the below answer to the QBank question makes sense or if this is a mistake? I can’t see why it’s not 101k (90*0.25 +108*0.5 + 98*0.25)

[Question and answer removed by admin]


The question and answer were deleted, but concerning stock dividends: say 10% stock dividend is issued on July 1st. For your computation, simply increase shares outstanding by 10% for all prior months (up till January 1st).

Oops wasn’t aware I shouldn’t post qbank questions… won’t do that again :slight_smile: Thanks Moonborne, indeed didn’t realise stock you adjust previous months for stock divi although it makes total sense since it’s the same thing as a stock split.

The investopedia explanation for stock dividend has the most hilarious wording ever. " Companies may decide to distribute this type of dividend to shareholders of record if the company’s availability of liquid cash is in short supply. " Can just picture the board meeting where the cfo highlights they’re short on cash for the dividend and a wizard comes up with the solution. “I’ve got a really good idea about that dividend the shareholders wanted guys, they’ll totally fall for this one…”

I wrote an article on WACSO that covers this in detail, with timelines and colored shares of stock and everything: http://www.financialexamhelp123.com/weighted-average-common-shares-outstanding-wacso/.

(Full disclosure: as of 4/25/16 there is a subscription fee to access the articles; free sample articles are available here: http://www.financialexamhelp123.com/sample-articles/.)