Question

    Which of the following most likely increases the wealth

    of shareholders?
    A Stock spilt Correct Answer Incorrect Answer
    B Stock dividend Correct Answer Incorrect Answer
    C Extra dividend Correct Answer Incorrect Answer
    D Both a and b Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Extra dividends are likely to be associated with an increase in shareholders’ wealth because they usually tend to excess profits to shareholders when the earnings of the company are very high. Stock dividends and stock split increase the number of shares held but the price per share reduces which keeps the total wealth the same. 

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