8. Stock dividends and stock splits Aa Aa Companies sometimes consider stock spl

Question

8. Stock dividends and stock splits Aa Aa Companies sometimes consider stock splits to bring down the price so that the stock attracts more purchases Consider the following case: Mainway Toy Company currently has 30,000 shares of common stock outstanding. Its management believes that its current stock price of $100 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 grtificate of S S12 If Mainway Toy Company 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, will be $50.00 $33.33 $200.00 $300.00 Hackworth Hardware Company is one of Mainway's leading If the firm pays a 7% | $400.00 |d, what will

Explanation / Answer

No change in value, hence

New price = Old price / 3 = 100 / 3 = 33.33 (Option B)

stock dividend instead of 7% dividend

new shares = 1300000*(1+7%) = 1391000 shares (Option D)

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