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Corporate Actions - Stock Dividend and Stock Split

Banannas Inc. has stock currently selling for $40 per share. The company has 1,200,000 shares outstanding. What would be the effect on the number of shares outstanding and on the stock price of the following:
1. 15% Stock Dividend
2. 4-for-3 Stock Split
3. Reverse 3-for-1 Stock Split

Solution Preview

Total capitalization of the Bananas stock = 1,200,000*$40=$48 million

1. 15% stock dividend
The number of shares outstanding will increase by 15% to =1,200,000*1.15=1,380,000
Since the total ...

Solution Summary

Explains what will happen to the capitalization of the firm after the announcements by the firm for stock dividend or stock split. These small problems check the conceptual foundation and are good from learning point of view.