A firm’s shares currently sell for $32.48, with 5 million shares outstanding. The firm is considering a 20% stock dividend, in which 100 shares become 120 shares. After the stock dividend, at what price will the shareholders’ value be unchanged? (Hint: Consider shareholder value to be the market capitalization, which equals the number of shares outstanding multiplied by the stock price.) If the stock price became $27.50 after the stock dividend, do the shareholders benefit?
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