a. What effect on Mammoth's equity account would result from the stock split? b. What change in stock price would you expect to result from the stock split? c. What is the maximum cash dividend per share that the firm could pay on common stock before and after the stock split? (Assume that legal capital includes all paid-in capital.) d. Contrast your answers to parts a through c. with the circumstances surrounding a 50% stock dividend.
a. What effect on Mammoth's equity account would result from the stock split? b. What change in stock price would you expect to result from the stock split? c. What is the maximum cash dividend per share that the firm could pay on common stock before and after the stock split? (Assume that legal capital includes all paid-in capital.) d. Contrast your answers to parts a through c. with the circumstances surrounding a 50% stock dividend.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Stock split versus stock dividend-Firm Mammoth Corporation is considering a 3-for-2 stock split. It currently has the stockholders' equity position shown. The current stock price is $120 per share. The most recent period's earnings
available for common stock is included in retained earnings.
a. What effect on Mammoth's equity account would result from the stock split?
b. What change in stock price would you expect to result from the stock split?
Preferred stock
Common stock (100,000 shares at $4 par)
Paid-in capital in excess of par
Retained earnings
Total stockholders' equity
$ 1,000,000
400,000
1,700,000
10,000,000
$13,100,000
c. What is the maximum cash dividend per share that the firm could pay on common stock before and after the stock split? (Assume that legal capital includes all paid-in capital.)
d. Contrast your answers to parts a through c. with the circumstances surrounding a 50% stock dividend.
a. If the firm declares a 3-for-2 stock split, the new balance in the common stock account after the split is $. (Round to the nearest dollar.)
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