when they decide to sell them, so today stock dividends are used far more often than stock splits.
d. When a company declares a stock split, the price of the stock typically declines— by about 50 % after a 2-for-1 split— and this necessarily reduces the total market value of the equity.
e. If a firm’ s stock price is quite high relative to most stocks— say $ 500 per share— then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $ 50.
4. Which of the following statements is CORRECT?
a. If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm’ s dividend payout.
b. The clientele effect can explain why so many firms change their dividend policies so often.
c. One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and wellidentified dividend clientele.
d. New-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don’ t change the firm’ s total amount of book equity.
e. Investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received.