Companies sometimes consider stock splits to bring down the price so that the st

Question

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 25,000 shares of common stock outstanding. Its management believes that its current stock price of $90 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 St certificate If Happy Monkey Manufacturing 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 If the firm pays a 3% stock dividend, what will be the total number of shares outstanding after the stock dividend? 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 2,132,100 shares 2,487,450 shares 2,842,800 shares 2,369,000 shares Fuzzy Muffin currently has 2,300,000 shares of common stock outstanding.

Explanation / Answer

Initial market capital = no. of shares * share price = 25000*90 = 2250000

No. of shares after stock split = 25000*3 = 75000

Stock price = 2250000/75000 = $30

b.

No. of shares after stock dividend = Initial no. of shares *(1+stock dividend)

= 2300000*(1+0.03) = 2369000 shares

Option D.

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