9. Stock dividends and stock splits

Companies sometimes employ stock splits to bring down the price of its shares so that the stock is more attractive to potential investors.

Consider the case of Tasty Tuna Corporation:

Tasty Tuna Corporation currently has 20,000 shares of common stock outstanding. Its management believes that its current stock price of $95 per share is too high. The company is planning to conduct a 4-for-1 stock split.

If Tasty Tuna Corporation declares a 4-for-1 stock split, what will be the price of the companys stock after the splitassuming that the total value of the firms stock remains the same before and after the splitshould be ($23.75 OR $31.67 OR $190.00 OR $380.00) per share.

Savory Seafood Inc. is one of Tasty Tunas leading competitors. Savory Seafoods market intelligence research team has learned of Tasty Tunas stock split plans, and is considering paying a stock dividend in response. As a result, executives at Savory Seafood decide to pay stock dividends to its shareholders. A stock dividend is another way of keeping the stock price from going too high. Savory Seafood Inc. currently has 2,200,000 shares of common stock outstanding.

If Savory Seafood pays a 6% stock dividend, how many new shares will the firm issue to its existing shareholders?

a.) 125,400 shares

b.) 105,600 shares

c.) 132,000 shares

d.) 112,200 shares