5. Stock dividends and stock splits Companies sometimes consider stock splits to bring down the price...

5. Stock dividends and stock splits

Companies sometimes consider stock splits to bring down the price so that the stock attracts more purchases.

Consider the following case:

Happy Monkey Manufacturing currently has 15,000 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 Happy Monkey Manufacturing 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 ___________.

A. 36.67

B. 330.00

C. 27.50

D. 55.00

E. 22.00

Fuzzy Muffin Manufacturing Company is one of Happy Monkey’s leading competitors. Fuzzy Muffin’s market intelligence research team shares Happy Monkey’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.

Fuzzy Muffin currently has 2,300,000 shares of common stock outstanding.

If the firm pays a 5% stock dividend, what will be the total number of shares outstanding after the stock dividend?

A. 2,173,500 shares

B. 3,018,750 shares

C. 2,415,000 shares

D. 2,898,000 shares

Expert Solution

jeff jeffy answered 4 months ago

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