Examkin

Question

Difficulty: Very hardSettlement Dates, Trade Confirmations, and Corporate Actions

An investor holds 1,6001,600 shares of Horizon Technologies common stock in a cash account. The corporation executes a 55-for-44 forward stock split. Shortly after the split becomes effective, the company distributes a 5%5\% stock dividend on all post-split shares. Following these corporate actions, the board of directors declares a regular quarterly cash dividend of $0.25\$0.25 per share. What is the total dollar amount of the cash dividend that the investor will receive?

Answer: 525 USD

Answer

The total cash dividend amount received by the investor is $525.00.
The correct answer is 525.00.Theinvestorbeginswith1,600shares.The5−for−4stocksplitincreasesthepositionto2,000shares(1,600×5/4).Next,the5525.00. The investor begins with 1,600 shares. The 5-for-4 stock split increases the position to 2,000 shares (1,600 × 5 / 4). Next, the 5% stock dividend adds an additional 5% to the position, resulting in 2,100 shares (2,000 × 1.05). Finally, multiplying the total adjusted position of 2,100 shares by the 0.25 per share cash dividend produces a total dividend payment of $525.00.

Step-by-Step Solution

1
Calculate the share position immediately following the 5-for-4 forward stock split.
1,600 shares × (5 / 4) = 2,000 shares.
A 5-for-4 stock split increases the number of shares held by a factor of 1.25 (5 divided by 4).
2
Calculate the updated share position after applying the 5% stock dividend to the post-split shares.
2,000 shares × 1.05 = 2,100 shares.
A stock dividend increases total shares held proportionally without changing the investor's total percentage ownership before cash dividend distribution.
3
Determine the total cash dividend payout based on the final share balance on the record date.
2,100 shares × 0.25=0.25 = 525.00.
Cash dividends are paid on the total number of shares owned by the stockholder of record as of the dividend record date.

Key Concept

Multi-step corporate action adjustments including forward splits, stock dividends, and dividend payout calculations.
Rate this question

Topics

Settlement Dates, Trade Confirmations, and Corporate Actions