Chapter 14, Problem 14.10P

Cash versus stock dividend Milwaukee Tool has the following stockholders’ equity account. The firm’s common stock currently sells for $4 per share.

Preferred stock	$100,000
Common stock (400,000 shares at $1 par)	$400,000
Paid-in capital in excess of par	$200,000
Retained earnings	$320,000
Total stockholders’ equity	$1,020,000

1. a. Show the effects on the firm of a cash dividend of $0 01, $0.05, $0.10, and $0.20 per share.
2. b. Show the effects on the firm of a 1%, 5%, 10%, and 20% stock dividend.
3. c. Compare the effects in parts a and b. What are the significant differences between the two methods of paying dividends?