Explain the differences between stock splits and stock dividends

| March 31, 2017

Question
Mammoth Corporation is considering a 3-for-2 stock split. It currently has the stockholders’ equity position shown. The current stock price is $120 per share. The most recent period’s earnings available for common stock are included in the retained earnings.

Preferred stock $1,000,000

Common Stock (100,000 shares at $3par) 300,000

Paid-in capital in excess of par 1,700,000

Retained earnings 10,000,000

Total stockholders’ equity $13,000,000

What effects on Mammoth would result from the stock split?
What change in stock price would you expect to result from the stock split?
What is the maximum cash dividend per share that the firm could pay on the common stock before and after the stock split? (Assume that legal capital includes all pain-in capital).
Contrast your answer to parts a. through c. with the circumstances surrounding a 50% stock dividend
Explain the differences between stock splits and stock dividends

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