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Cash versus stock dividend Milwaukee Tool has the following stockholders' equity account. The firm's common stock currently sells for
$2.53 per share.
| Preferred stock | $ 92,000 |
| Common stock (100,000 shares at $0.95 par) | 95,000 |
| Paid-in capital in excess of par | 216,000 |
| Retained earnings | Modifying 400,000 |
| Total stockholders' equity | Modifying $803,000 |
a. Show the effects on the firm of a cash dividend of
$0.01
per share.
b. Show the effects on the firm of a
11 %
stock dividend.
c. Compare the effects in parts a and
b.
What are the significant differences between the two methods of paying dividends?
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