In early 2011, the $20 par common stock of Driftwood Construction Company was selling in the range of $100 to $130 per share, with 146,000 shares outstanding. On May 1, 2011, Driftwood’s board of directors decided that, effective May 10, 2011, Driftwood stock would be split 2 for 1. Before making the public announcement, the board had to decide whether to do the split as a “true” stock split and reduce the par value per share to $10 or to accomplish the split through a 100% stock dividend.
Why does Driftwood’s board of directors want to double the number of shares outstanding? What factors should Driftwood’s board consider in deciding between a true 2-for-1 split and a 100% stock dividend?