QUESTION 2 (UNIT 3)
a) Distinguish the differences between stock splits and stock
dividends.
b) Recent dividend distributed RM1. Suppose a firm is expected to
increase dividends by 20% in one year and by 15% in two years.
After that, dividends will increase at a rate of 5% per year
indefinitely. If the required return is 20%, calculate the
stock.
BBF302/05 FINANCIAL MANAGEMENT AND ANALYSIS
JULY 2020
ASSIGNMENT 2
Page 3 of 4
c) Capital Bhd. just paid a dividend...
What are stock dividends and stock splits? What are the
advantages and disadvantages of stock dividends and splits? When
should a stock dividend as opposed to a stock split be used?
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...
Corporations can execute stock transactions other than cash
dividends, such as stock dividends and stock splits. First, briefly
explain these two transactions in your own words. Second, offer an
explanation as to why a corporation would want to issue a stock
dividend or stock split? Third, search the internet and list a
corporation you recognize that has issued either a stock dividend
or a stock split in the past couple of years.
Finance theory proves that stock dividends and stock splits are
beneficial to the shareholders in the long run.
Discuss how and why exchanging 1 share at $60 for 3 shares at
$20 each can be beneficial to the shareholders.