At the end of 20X6, Home Ltd. reported the following in shareholders’ equity:

Common shares, no-par value; authorized, unlimited shares; issued, 1,400,000 shares	$1,350,000
Retained earnings	$53,080,000
	72,205,000

At this time, the shares were trading in the range of $2 to $4 per share on public stock markets. The company’s board of directors is contemplating two alternative courses of action:

1.Declaring a 50% stock dividend, or

2.Executing a 3-for-2 stock split. 

A. Prepare the shareholders’ equity section for each alternative, assuming that market value is used to capitalize the stock dividend.

B. What would the expected share price be assuming a share price of $4 for alternative 1 and a share price of $6 for alternative 2?

C. Which alternative would shareholders prefer? Which alternative would the company prefer?

Answer rating: 100% (QA)

SOLUTIONA CALCULATION AS FOLLOWS AVERAGE MARKET PRICE 24 2 3 PER SHARE NO OF S... View the full answer