Stock Dividends, Splits and Reverse Splits
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Research Web sites that contain examples of stock dividends, stock splits, and reverse splits. Yahoo Finance at http://finance.yahoo.com is a good starting point for locating these Web sites.
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1) A description of the Web site examples you found, including the location (URLs) of the Web sites;
2) Definitions of stock dividends, stock splits, reverse splits, and effects on per share calculations;
3) A discussion about the reasons for stock dividends, stock splits, and reverse splits;
4) An explanation of how stock dividends, stock splits, and reverse splits affect the firm and the investor.
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Solution Summary
The given solution discusses stock dividends, stock splits, and reverse splits as researched online, with examples, in 1235 words with references.
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Examples of the Stock dividend, Stock splits and Reverse splits
Stock Dividend: The practical example given in the About.com depicts that the company ABC's market capitalization remains same after issuing the stock dividend to the investors. The description about the example is as follows: Before issuing the stock dividend the common stock of the company is 1millon shares and its market price= $100 per share, market capitalization of the ABC is $100million. The company has 5 investors and each holding 200,000 shares each. Now, the management of the company issues 20% stock dividend. After issuing the stock dividend the position of investors that each will hold 40,000 shares more i.e. (20% of 1millon/5= 40,000) and total number of shares is equal to 240,000 each. Now the common stock of the ABC is 1.2millon and market price is equal to $83.33 due to the fall in the value of each share. Now, the investors own are 240,000 shares @ $83.33. After this the capitalization rate is remained unchanged.
(http://beginnersinvest.about.com/od/dividendsdrips1/a/aa040904_2.htm).
Stock splits: The example of Stock splits given in Dave Manuel.com explains about the trading position of the two companies i.e. XYZ & ZYX. In the given example, XYZ market price of share is $100 and its market capitalization $10billon whereas the market price of the common stock of ZYX co. is $50 and its capitalization value $30 billon dollars. In this situation, both the companies are in same sector but there is wide difference in its market capitalization. In the situation, XYZ announce stock splits i.e. 3 of 1. It means that the investors own company's three shares instead of one. Due to stock splits, XYZ easily attract the new investors because company trades in the market at $33.33per share (http://www.davemanuel.com/2008/02/10/why-do-companies-announce-stock-splits-or-reverse-stock-splits/).
Reverse splits: In this example, Nasdaq needs to trade in the market at $1or more in order to avoid the danger of being delisted in the stock ...
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- BBA, University of Rajasthan
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