If the alternate use of cash also improves the

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Unformatted text preview: res ÷ 149.5 million shares outstanding), and Mr. Jones' investment was worth $46 million (1 million shares $46 market value per share). After the stock dividend, Mr. Jones would own 2,000,000 shares, and the total number of shares outstanding would increase to 299 million shares. Thus, Mr. Jones would still own .669% of Hershey (2 million ÷ 299 million shares outstanding). Because the market price would be expected to drop to $23 per share [see part (c)], Mr. Jones' investment would still be worth approximately $46 million. Thus, neither the percentage of shares owned nor the total value of an equity investment would be expected to be affected by a stock dividend, provided that the market price decreases proportionately to the increase in the number of shares outstanding. e. As demonstrated in part d, a stock dividend does not represent an economic exchange between a corporation and its shareholders. A stock dividend merely splits the shareholders’ interests into smaller pieces. The total value of the company and its assets and liabilities remain unchanged. f. A company m...
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