Answer:
Stock Splits:
1. Tolbotics Inc. currently has 15,000 shares of common stock outstanding. Its management believes that its current stock price of $90 per share is too high. The company is planning to conduct stock splits in the ratio of 3 for 1 as described in the animation.
If Tolbotics Inc. declares a 3-for-1 stock split, the price of the company’s stock after the split, assuming that the total value of the firm’s stock remains the same after the split, will be____$30_______ .
2. Hackworth Hardware Company is one of Robotics leading competitors. Hackworth Hardware Company’s market intelligence research team shares Robotics plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Hackworth decide to offer stock dividends to its shareholders. A stock dividend is another way of keeping the stock price from going too high. Hackworth currently has 1,100,000 shares of common stock outstanding.
If the firm pays a 6% stock dividend, how many shares will the firm issue to its existing shareholders?
= 66,000
Explanation:
The 3-for-1 stock split shares offered to stockholders by Tolbotics Inc. will result into a share price of $33 ($99/3). Â This effectively reduces the stock exchange market price but does not affect its shareholders adversely since they still retain the same value of shareholding in the company. Â Shareholders may even gain more in capital appreciation if the share price goes up after the split.
Hackworth Hardware Company is offering its shareholders a total of 66,000 additional shares (6% of 1,100,000) in the form of dividends.
