Business, 21.03.2020 00:37 aaronlikly

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 .

Fuzzy Muffin Manufacturing Company is one of Tolbotics’s leading competitors. Fuzzy Muffin Manufacturing Company’s market intelligence research team shares Tolbotics’s plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Fuzzy Muffin decide to offer stock dividends to its shareholders.

A stock dividend is another way of keeping the stock price from going too high. Fuzzy Muffin currently has 2,300,000 shares of common stock outstanding.

If the firm pays a 4% stock dividend, how many shares will the firm issue to its existing shareholders?

a.101,200 shares

b.78,200 shares

c.64,400 shares

d.92,000 shares

Answers: 3

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