Final answer:
A company exchanging 1 share of stock for 10 shares is implementing a reverse stock split (option b). This does not affect the company's market capitalization, but aims to consolidate shares and potentially increase per-share price.
Step-by-step explanation:
When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this action is referred to as a reverse stock split. This is a strategy used by companies to reduce the number of shares owned by the public, often aiming to increase the share price or to make the stock appear more valuable. During a reverse stock split, shareholders receive fewer but potentially more valuable shares, which does not affect the company's market capitalization since the product of the number of shares and the stock price remains constant.
Issuing stock presents a way for companies to raise capital without incurring debt, offering investors a potential return on investment through dividends or capital gains. Investors can earn dividends, which are direct payments from a firm to its shareholders, or they can benefit from capital gains, which is the increase in value of the stock between purchase and sale. However, when it comes to changes in the number of shares through corporate actions such as stock splits or reverse stock splits, dividends and capital gains are not directly affected.