Distributions to Shareholders: Stock Dividends and Stock Splits Although there is little empirical evidence to support t

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Distributions To Shareholders Stock Dividends And Stock Splits Although There Is Little Empirical Evidence To Support T 1 (40.95 KiB) Viewed 16 times

Distributions to Shareholders: Stock Dividends and Stock Splits Although there is little empirical evidence to support the contention, there is a widespread belief in financial circles that an optimal price range exists for stocks- meaning that within this range the price/earnings ratio and therefore the firm's value will be maximized. Two such tools to use for this purpose are stock dividends and stock splits. They are often used to lower a firm's stock price, and at the same time, to conserve the firm's cash resources. A stock split is an action taken. by a firm to increase the number of shares outstanding, such as doubling the number of shares outstanding by giving each stockholder two new shares for each one formerly held. A stock dividend also divides the pie into smaller slices without affecting the fundamental position of the current stockholders but shareholders receive additional shares of stock rather than cash. Stock dividends used on a regular annual basis keep the stock price more or less constrained. Stock splits ✓are generally used after a sharp price run-up to produce a large price reduction. A recent Bloomberg BusinessWeek article states that stock splits have become a lot less popular in recent years because individual investors have moved from purchasing individual company shares to purchasing shares in mutual funds. Institutional investors are less likely to value stock splits Quantitative Problem: After a 4-for-1 stock split, Perry Enterprises paid a dividend of $2.30 per new share, which represents a 4% increase over last year's pre-split dividend. What was last year's dividend per share? Round your answer to the nearest cent. $