Cash Dividend – If the company will declare cash dividend of $1 per share, the retained earnings will be reduced by a total value of $100,000. This is because cash dividend is disbursed from the earnings of the entity, but the total outstanding shares will remain the same. This will cause the book value per share to be at $3.20.

Stock Dividend – If the company will declare stock dividend of 4 share for every share held at ex-date, the retained earnings will be valued at $120,000 since there is no reduction in the cash value. Instead, stock dividend will increase the outstanding share by 25,000, computed as 100,000 / 4, and will result to the new outstanding share of 125,000 post stock dividend. As a result, the book value per share will be at $3.36.