5. Stock dividends and stock splits

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 4 for 1 as described in the animation.

If Happy Monkey Manufacturing declares a 4-for-1 stock split, the price of the companys stock after the split, assuming that the total value of the firms stock remains the same after the split? A. 22.50 B. 45.00 C. 360.00 D. 30.00 E. 180.00

Fuzzy Muffin Manufacturing Company is one of Happy Monkeys leading competitors. Fuzzy Muffin Manufacturing Companys market intelligence research team shares Happy Monkeys plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Fuzzy Muffin decide to offer stock dividends to its shareholders.

A stock dividend is another way of keeping the stock price from going too high. Fuzzy Muffin currently has 2,300,000 shares of common stock outstanding.

If the firm pays a 7% stock dividend, how many shares will the firm issue to its existing shareholders?

A. 112,700 shares

B. 128,800 shares

C. 144,900 shares

D. 161,000 shares