week 8 fin 534

Distributions to Shareholders and Capital Structure Decisions

• Contrast the differences between a stock dividend and a stock split. Imagine that you are a stockholder in a company. Determine whether you would prefer to see the company that you researched declare a 100% stock dividend or declare a two-for-one split. Provide support for your answer with one real-world example of your preference.

REspond to student …Danielle Debardelaben

RE: Week 8 Discussion

A stock dividend is a payment to shareholders of additional shares of equity rather than cash amount, and the par value of a share will remain the same. Declaring a 100% stock dividend means one additional stock for every stock held.While in a stock split, the par value of a share will reduce. If a company declares a 2-for-1 split of stock of par value 10, then after the split, you will get two stocks of the par value of 5.I will prefer a 100% stock dividend over a 2-for-1 split because, in case of the stock dividend, the company pays from the profit of the company. There will be a transfer of funds from retained earnings account to common stock account and Paid-in capital in excess of par account, and retained earnings will decrease after the stock dividend.