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2. Payment of a stock dividend

a. increases the number of shares of stock held by the firm’s stockholders.

b. increases the per share price of the firm’s stock.

c. requires stockholders to invest more money in the firm’s stock.

d. has no effect on the firm’s balance sheet.

e. generally decreases the total value of the firm that pays the stock dividend.

When a stock dividend is paid, all stockholders receive their dividend payment in stock, which means that the number of shares held by each stockholder is greater after the stock dividend is paid. Because more shares are outstanding after the stock dividend is paid, which requires no additional investment from stockholders, the per share price of the stock will be lower after the dividend payment than before the payment.

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