Question

As a corporate shareholder, would you be concerned if the firm distributed stock dividends for 3 successive quarters instead of cash dividends ? Explain why or why not.

Answer 1

Answer:

A partnership may announce a stock profit rather than a money profit so as to 1) increment the quantity of offers of stock remarkable.

2) move a portion of its held income to paid-in capital. and

3) limit dispersing the organization's money to its investors.

On the off chance that a partnership has 100,000 offers of stock extraordinary and it proclaims a 10% stock profit, the company winds up having 110,000 offers remarkable. An individual investor having 1,000 offers before the 10% stock profit will have 1,100 offers after the stock profit.

This present person's stake in the enterprise was 1% (1,000 out of 100,000 offers) preceding the stock profit and will stay at 1% (1,100 out of 110,000 offers) after the stock profit.

Since the partnership hasn't generally changed in light of the stock profit, the all out market estimation of the company ought not change. As it were, if the complete market estimation of the partnership was $1 million preceding the stock profit, it ought to be $1 million after the stock profit. Be that as it may, the market estimation of each offer should diminish: $1,000,000 isolated by 100,000 offers = $10 per share, and $1,000,000 partitioned by 110,000 offers = $9.0909.

The complete market estimation of the person's possessions ought to likewise continue as before: 1,000 offers X $10 = $10,000, and 1,100 offers X $9.0909 = $10,000. On the off chance that the market does not alter for the expanded number of offers, the individual investors will profit.