LMN declared a 25% stock dividend. After selling the shares three years later for $50, what statement about the adjusted cost basis is correct?

When a company declares a stock dividend, it effectively issues additional shares to shareholders based on the number of shares they already own. In this scenario, the 25% stock dividend means that shareholders will receive additional shares equivalent to 25% of what they already hold.

To determine the adjusted cost basis of the shares after the stock dividend, we need to calculate how the cost basis per share is affected. If the original shares had a certain cost basis, the stock dividend would increase the total number of shares while also distributing the original cost basis over a larger number of shares. This can lead to a decrease in the individual cost basis per share.

For example, if someone originally owned 100 shares at a cost basis of $40 each, their total investment was $4,000. After a 25% stock dividend, they would receive an additional 25 shares, bringing the total to 125 shares. The total cost basis remains $4,000, but the adjusted cost basis per share will now be:

Total Cost Basis / Total Shares = $4,000 / 125 = $32 per share.

When shares are sold after a holding period, the gain is calculated based on the adjusted cost basis. If the shares were sold for $