Asked by flora Verdura on Jun 28, 2024
Verified
All other things equal,a stock split will have which of the following effects on shareholder's wealth?
A) Shareholder's wealth should be reduced.
B) Shareholder's wealth should remain constant
C) Shareholder's wealth should be increased
D) Stock dividends and shareholder wealth are not related.
Stock Split
A corporate action in which a company divides its existing shares into multiple shares to boost the liquidity of the shares, although the overall value of one's holdings remains the same.
Shareholder's Wealth
The overall value that shareholders earn from their investment in a company, including dividends received and capital gains from share price appreciation.
- Evaluate the consequences of stock dividends and stock splits on an investor's financial assets.
- Recognize the impact of stock splits and reverse stock splits on a firm's stock price.
Verified Answer
ZK
Zybrea KnightJul 04, 2024
Final Answer :
B
Explanation :
A stock split does not fundamentally alter the company's value or the total value of shareholders' wealth. It simply increases the number of shares outstanding while proportionally reducing the price per share, leaving the overall market capitalization and the value of individual shareholders' holdings unchanged.
Learning Objectives
- Evaluate the consequences of stock dividends and stock splits on an investor's financial assets.
- Recognize the impact of stock splits and reverse stock splits on a firm's stock price.