Question 1 (20 marks) Part a (2+2+2+2+2) Ahmed Industries current stockholders' equity account is as follows: Preferred stock Common stock (600,000 shares at $3 par) Paid-in capital in excess of par Retained earnings Total stockholders' equity $ 400,000 1,800,000 200,000 800,000 $3,200,000 1. Indicate the change, if any, expected if the firm declares a 2-for-1 stock split. 2. Indicate the change, if any, expected if the firm declares a 1-for-1 1/2 reverse stock split. 3. Indicate the change, if any, expected if the firm declares a 3-for-1 stock split. 4. Indicate the change, if any, expected if the firm declares a 6-for-1 stock split. 5. Indicate the change, if any, expected if the firm declares a 1-for-4 reverse stock split. Part b (5+5) 1. Why do firms issue stock dividends? Comment on the following statement: I have a stock that promises to pay a 25 percent stock dividend every year, and therefore it guarantees that I will break even in 4 years." 2. Describe the residual theory of dividends and the key arguments regarding dividend irrelevance and relevance