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 .