Stock split versus stock dividend---Firm??Mammoth Corporation is considering a? 3-for-2 stock split. Itcurrently has the? stockholders' equity position shown. The currentstock price is? $120 per share. The most recent? period's earningsavailable for common stock is included in retained earnings.
Preferred stock $ ? 1,000,000
Common stock (130,000 shares at? $5 ?par) 650,000
?Paid-in capital in excess of par ?1,700,000
Retained earnings 10,000,000
Total? stockholders' equity $13,350,000
a. What effect on? Mammoth's equity account would result fromthe stock split??
b. What change in stock price would you expect to result fromthe stock? split?
c. What is the maximum cash dividend per share that the firmcould pay on common stock before and after the stock? split??(Assume that legal capital includes all? paid-incapital.)
d. Contrast your answers to parts a through c. with thecircumstances surrounding a? 50% stock dividend.
e.??Explain the differences between stock splits and stockdividends.
