(Learning Objective 4: Analyzing cash dividends and stock dividends) United Parcel Service (UPS), Inc. had the following stockholders’ equity amounts on December 31, 20X5 (adapted, in millions):

Common stock and additional paid-in capital; 1,135 shares issued	$ 278
Retained earnings	9,457
Total stockholders’ equity	$9,735

During 20X5, UPS paid a cash dividend of $0.715 per share. Assume that, after paying the cash dividends, UPS distributed a 10% stock dividend. Assume further that the following year UPS declared and paid a cash dividend of $0.65 per share.

Suppose you own 10,000 shares of UPS common stock, acquired 3 years ago, prior to the 10% stock dividend. The market price of UPS stock was $61.02 per share before the stock dividend.

Required

1. How does the stock dividend affect your proportionate ownership in UPS? Explain.

2. What amount of cash dividends did you receive last year? What amount of cash dividends will you receive after the above dividend action?

3. Assume that immediately after the stock dividend was distributed, the market value of

UPS’s stock decreased from $61.02 per share to $55.473 per share. Does this decrease represent a loss to you? Explain. (Challenge)

4. Suppose UPS announces at the time of the stock dividend that the company will continue to pay the annual $0.715 cash dividend per share, even after distributing the stock dividend. Would you expect the market price of the stock to decrease to $55.473 per share as in Requirement 3? Explain.