ACC 556 Week 8 Discussion – Stock Split or Dividend

Please respond to the following:

Differentiatebetween a stock split and a stock dividend. As the financial managerfor Tesla Corporation, which would you recommend for Tesla? Providesupport for your rationale.

Be sure to respond to your classmate’s (Sherreta) post below:

Hello Classmates & Professor:

Differentiating Between a Stock Split and a Stock Dividend:

Stock dividend is a distribution of additional shares of a company’sstock to existing shareholders whereas a stock split is done to dividethe existing. On declaring stock dividends, there is no change in facevalue of shares. In contrast, in a stock split, the face value of theshare decreases. Stock dividend and stock split are two aspects that areconfused easily due to many similarities between them. Both result inan increase in the number of outstanding shares in the company withoutaffecting the total market value. The key difference between stockdividend and stock split is that while stock dividend allocates a numberof shares free of charge based on the prevailing share ownership, stocksplit is a method where existing shares are divided into multiple unitswith the intention of expanding the number of shares. Stock dividend apportions a number of shares free of charge based onthe current share ownership. Stock split divides the existing sharesinto multiple shares with the intention of expanding the number ofshares. Stock dividend is usually offered in situations where thecompany is unable to pay a cash dividend. Stock splits are done toimprove the liquidity of the shares. Stock dividends are only availableto existing shareholders. Both existing shareholders and potentialinvestors can benefit since share prices are reduceBoth stock dividend and stock split results in an increase in thetotal number of shares outstanding. The main difference between stockdividend and stock split mainly depends on the purpose they are issuedfor, as both result in similar outcomes. Stock dividends is a suitableoption for short term cash limitations; however, this may not be likedby many investors since the majority expect regular incomes that onlycash dividends can provide. As the financial manager for Telsa Corporation, I would recommend astock split for the following reasons: Accessibility to RetailInvestors: Telsa’s stock has a history of trading at a high per-shareprice, which can deter retail investors which limited capital frominvesting. A stock split would reduce the per-share price, makingTelsa’s stock more accessible to a broader range of investors. This canpotentially increase demand and trading activity. Positive MarketSentiment: Can attract more investors, potentially leading to short-termprice appreciation. Liquidity Enhancement: Higher liquidity can reducetrading spreads and enhance overall market efficiency. No cash outflow:Importantly, a stock split does not involve any cash outflow, preservingTelsa’s cash for strategic investments or operational needs.

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