Bontempo Electronics Inc

Multiple Choice

Bontempo Electronics Inc. has total assets of $81 million, financed by $36 million of debt and $45 million of equity where the contributed common shares account for $12 million. There are 2.4 million shares outstanding. The directors of Bontempo Electronics have declared a stock dividend of one share for every three shares held. If the market value of the shares is $27.50 before the stock dividend, which of the following is the best conclusion to make?

A) Shareholders will experience an increase in their wealth of $4 million.
B) The company has effectively reduced its debt to equity ratio.
C) Shareholders will suffer a dilution of their future earnings by 33%.
D) Shareholders will experience an increase in their wealth of $22 million.
E) There has been no change in shareholders' wealth.