For 20 years, Armand Service Corporation, a public corporation that has promoted itself to investors as a stable, reliable company, has paid a cash dividend every quarter. Recent competition from Asian companies has negatively affected the company’s earnings and cash flows. As a result, Judy Armand, president of the company, is proposing that the board of directors declare a stock dividend of 5 percent this year instead of a cash dividend. She stated: “This will maintain our consecutive dividend record and will not require any cash outflow.” What is the difference between a cash dividend and a stock dividend? Why does a corporation usually distribute either kind of dividend, and how does each affect the financial statements? Is the action that Judy Armand proposed ethical? Why or why not?