MyTel Corp, an Internet service provider, has prospered during the past seven years, and recently the company's share price has shot up to $248.00. MyTel's management wishes to decrease the share price to the range of $106.00 to $129.00, which will be attractive to more investors. Should the company issue a 100 percent stock dividend or split the stock? Why? If you propose a stock split, state the split ratio that will accomplish the company's objective. Show your computations. CD The company has two options: to split the stock or to issue a 100% stock dividend. If it uses a 2-for-1 stock split ratio, then both options wil decrease the company's stock price to 0$
MyTel Corp, an Internet service provider, has prospered during the past seven years, and recently the company's share price has shot up to $248.00. MyTel's management wishes to decrease the share price to the range of $106.00 to $129.00, which will be attractive to more investors. Should the company issue a 100 percent stock dividend or split the stock? Why? If you propose a stock split, state the split ratio that will accomplish the company's objective. Show your computations. CD The company has two options: to split the stock or to issue a 100% stock dividend. If it uses a 2-for-1 stock split ratio, then both options wil decrease the company's stock price to 0$
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:MyTel Corp, an Internet service provider, has prospered during the past seven years, and recently the company's share price has shot up to $248.00. MyTet's management wishes to decrease the
share price to the range of $106.00 to $129.00, which will be attractive to more investors. Should the company issue a 100 percent stock dividend or split the stock? Why? If you propose a
stock spit, state the split ratio that will accomplish the company's objective. Show your computations.
COD
The company has two options: to split the stock or to issue a 100% stock dividend. If it uses a 2-for-1 stock split ratio, then both options will decrease the company's stock price to $
Expert Solution
Step 1: Introduction
Stock Split :
- In stock split, the shareholders receive additional shares based on the split ratio, but the price of each share is reduced accordingly. Hence, it does no affect the market capitalization of the company. It also doesn't affect the shareholder's investment portfolio.
- A stock split reduces the price of a share, which provides more liquidity and hence more people can buy the share due to the lower price per share.
Stock Dividend :
- When a company has excess amount in reserves and surplus, it issues stock dividend also known as bonus shares. Bonus shares will be issued to existing shareholders free of cost. In company's balance sheet, the amount of bonus shares is transferred from reserves and surplus to equity.
- Bonus shares reduce the price of shares proportionately, but do not affect the capitalization of the company or shareholder's investment portfolio.
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