Consider the case of Purple Turtle Group: Purple Turtle Group currently has 30,0
ID: 2621285 • Letter: C
Question
Consider the case of Purple Turtle Group:
Purple Turtle Group currently has 30,000 shares of common stock outstanding. Its management believes that its current stock price of $95 per share is too high. The company is planning to conduct a 3-for-1 stock split.
1.) If Purple Turtle Group declares a 3-for-1 stock split, what will be the price of the company’s stock after the split—assuming that the total value of the firm’s stock remains the same before and after the split—should be _____? per share.
2.) Happy Frog Inc. is one of Purple Turtle’s leading competitors. Happy Frog’s market intelligence research team has learned of Purple Turtle’s stock split plans, and is considering paying a stock dividend in response. As a result, executives at Happy Frog decide to pay stock dividends to its shareholders. A stock dividend is another way of keeping the stock price from going too high. Happy Frog Inc. currently has 3,300,000 shares of common stock outstanding.
If Happy Frog pays a 6% stock dividend, how many new shares will the firm issue to its existing shareholders?
A) 198,000 shares
B) 207,900 shares
C) 138,600 shares
D) 158,400 shares
Explanation / Answer
1)Price after stock split = price before stock split * 1/3
= 95 *1/3
= $ 31.66667 per share
2)Number of shares issued as stock dividend = shares outstanding * % of stock dividend
= 3,300,000*.06
= 198,000 shares
correct option is "A"