5. Stock dividends and stock splits Companies sometimes consider stock splits to

Question

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 case of Mainway Toys Co.: Mainway Toys Co. currently has 10,000 shares of common stock outstanding. Its management believes that its current stock price of $95 per share is too high. The company is planning to conduct stock splits in the ratio of 3 for 1 as described in the animation. ertificate or Stoc CR $12 1 If Mainway Toys Co. declares a 3-for-1 stock split, what will be 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? If the firm pays a 7% stock dividend, how many shares will the firm issue to its existing shareholders? Scorecard Corp. is one of Mainway Toys Co.'s leading competitors. Scorecard Corp.'s market intelligence research team shares Mainway Toys Co.'s plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Scorecard Corp. decide to offer stock dividends to its shareholders 177,100 shares 152,950 shares 161,000 shares 120,750 shares A stock dividend is another way of keeping the stock price from going too high. Scorecard Corp. currently has 2,300,000 shares of common stock outstanding

Explanation / Answer

4 Adavantage of share re puchase

All Applies

1 Can remove a large block of stock that is “overhanging” the market and keeping price per share down

2 Can be used to produce large scale changes in capital structure

3 Stock holder have te option to either sell or not sell stock

1 Price Of The company share after stock Split =95/3 =31.67 2 No of share to be issue as stock dividend 2,300,000*.07 =1610000 3 PE ratio =Price/EPS EPS =(4800000/910000)=5.27 PE ratio =19/5.27 =3.61 EPS After repurchase =4800000/820000 Price =3.61*5.85 =21.12

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