The board of Lowveld Transport Co. is exploring ways to expand the number of issued shares in an effort to reduce the market price per share to a level that the firm considers more appealing to investors. The options under consideration are a 20% share dividend or alternatively, a 5-for-4 share split. At the present, the firm's equity account and other per-share information are as follows:

Detail R

Preference 0

Ordinary shares (100 000 at R1,00 par) 100 000,00

Share premium 900 000,00

Retained earnings 700 000,00

Total shareholder' equity 1 700 000,00

Price per share 30,00

Earnings per share 3,60

Dividend per share 1,08

REQUIRED:

3.1 Show the effect on the equity accounts and per-share data of a 20% share dividend

3.2 Show the effect on the equity accounts and per-share data of a 5-for-4 share split

3.3 Which option will accomplish Lowveld Transport's goal of reducing the current share price while maintaining a stable level of retained earnings?

3.4 What legal constraints might encourage the firm to choose a share split over a share dividend?