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Stock split versus stock dividend---Firm   Mammoth Corporation is considering a​ 3-for-2 stock split. It currently has...

Stock split versus stock dividend---Firm   Mammoth Corporation is considering a​ 3-for-2 stock split. It currently has the​ stockholders' equity position shown. The current stock price is​ $120 per share. The most recent​ period's earnings available for common stock is included in retained earnings.

Preferred stock $ ​ 1,000,000

Common stock (130,000 shares at​ $5 ​par) 650,000

​Paid-in capital in excess of par ​1,700,000

Retained earnings 10,000,000

Total​ stockholders' equity $13,350,000

a. What effect on​ Mammoth's equity account would result from the stock split​?

b. What change in stock price would you expect to result from the stock​ split?

c. What is the maximum cash dividend per share that the firm could pay on common stock before and after the stock​ split? ​(Assume that legal capital includes all​ paid-in capital.)

d. Contrast your answers to parts a through c. with the circumstances surrounding a​ 50% stock dividend.

e.  Explain the differences between stock splits and stock dividends.

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jeff jeffy answered 8 months ago
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