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:

Mainway Toy Company currently has 10,000 shares of common stock outstanding. Its management believes that its current stock price of $105 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 Mainway Toy Company 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? ____?___

Hackworth Hardware Company is one of Mainways leading competitors. Hackworths market intelligence research team shares Mainways plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Hackworth decide to offer stock dividends to its shareholders.

Hackworth currently has 1,900,000 shares of common stock outstanding.

If the firm pays a 5% stock dividend, what will be the total number of shares outstanding after the stock dividend?

1,695,750 shares

2,294,250 shares

1,995,000 shares

2,194,500 shares