Ortago S.A.'s €10 par ordinary shares are selling for €110 per share. Four million shares are currently issued and outstanding. The board of directors wishes to stimulate interest in Ortago S.A. ordinary shares before a forthcoming share issue but does not wish to distribute cash at this time. The board also believes that too many adjustments to the equity section, especially retained earnings, might discourage potential investors.
The board has considered three options for stimulating interest in the shares:
1. A 20% share dividend.
2. A 100% share dividend.
3. A 2-for-1 share split.
Instructions
Acting as financial advisor to the board, you have been asked to report briefly on each option and, considering the board's wishes, make a recommendation. Discuss the effects of each of the foregoing options.