Molina Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last

6 months, however, have been a cash drain on the company, as profit margins have been greatly

narrowed by increasing competition. With a cash balance sufficient to meet only day-to-day operating needs, the president, Rob Whitehead has decided that a stock dividend instead of a cash dividend should be declared. He tells Molinas financial vice president, Debbie Chamata, to issue a press release stating that the company is extending its consecutive dividend record with the issuance of a 5% stock dividend.

Write the press release convincing the stockholders that the stock dividend is just as good as a cash dividend, he orders. Just watch our stock rise when we announce the stock dividend. It must be a good thing if that happens.

Instructions

(a) Who are the stakeholders in this situation?

(b) Is there anything unethical about Whiteheads intentions or actions?

(c) What is the effect of a stock dividend on a corporations stockholders equity accounts? Which would you rather receive as a stockholdera cash dividend or a stock dividend? Why?