QUESTION 2

The Getex Corporation is a manufacturing company that produced digital board and IT component. Mr Haris the Chief Financial Officer (CFO) has been instructed by the CEO to prepare year-end dividend planning and will be presented during the annual meeting. Mr Haris need to prepare a few options either the company need to declare stock dividend or stock split. As a finance executive, you need to prepare this planning and present to Mr Haris. The following data represent equity accounts for the Getex Corporation;

Common stock (RM2 par value,30,000 units) RM 60,000

Capital surplus 285,000

Retained earnings 649,180

Total owners equity 994,180

Required:

1. The stock currently sells for RM30 per share and if 10 percent stock dividend is declared, how many new shares will be distributed? Show how the equity accounts would change.

2. If Getex declared a 25 percent stock dividend, how would the accounts change?

3. Getex declares a four-for-one stock split. How many shares are outstanding now? Determine the new par value per share. Show how the equity accounts would change.

4. Getex declares a one-for-five reverse stock split. How many shares are outstanding now? What is the new par value per share?
5. Provides THREE (3) reasons why Getex should pay its shareholders higher dividend although the firm need to issue more stocks to finance the dividend payments.