The Klingon Fastener Company has the following shareholders’ equity account:
|
Common stock ($8 par value) |
$ 2,000,000 |
|
Additional paid in capital |
1,600,000 |
|
Retained earnings |
8,400,000 |
|
Total shareholders’ equity |
$12,000,000 |
The current market price of the stock is $60 per share.
a. What will happen to this account and to the number of shares outstanding with (1) a 10 percent stock dividend? (2) a 2 for 1 stock split? (3) a 1 for 2 reverse stock split?
b. In the absence of an informational or signaling effect, at what share price should the common stock sell after the 10 percent stock dividend? What might happen to stock price if there were a signaling effect?