Companies sometimes consider stock splits to bring down the price so that the stock attracts more purchases.
Question:
Companies sometimes consider stock splits to bring down the price so that the stock attracts more purchases. Consider the following case: Tolbotics Inc. currently has 20,000 shares of common stock outstanding. Its management believes that its current stock price of $110 per share is too high. The company is planning to conduct stock splits in the ratio of 2 for 1 as described in the animation. If Tolbotics Inc. declares a 2-for-1 stock split, the price of the company’s stock after the split, assuming that the total value of the firm’s stock remains the same after the split, will be _______ . Hackworth Hardware Company is one of Tolbotics’s leading competitors. Hackworth Hardware Company’s market intelligence research team shares Tolbotics’s plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Hackworth decide to offer stock dividends to its shareholders. A stock dividend is another way of keeping the stock price from going too high. Hackworth currently has 1,900,000 shares of common stock outstanding. If the firm pays a 4% stock dividend, how many shares will the firm issue to its existing shareholders?
Financial and managerial accounting
ISBN: 978-1118016114
1st edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso