Asked by Christyon Pulley on May 31, 2024
Verified
Which of the following are realistic motives for a stock split?
A) To increase the number of shares because successful companies have large numbers of shares outstanding.
B) To reduce the stock's price to keep it in a desirable trading range.
C) To immediately increase the market value of the firm's stock.
D) a and b
Stock Split
A corporate action that increases the number of shares in a company through the division of its existing shares.
Trading Range
The spread between the high and low prices at which a stock or other financial instrument trades over a particular period of time.
Market Value
The market's current valuation of assets or services available for trading.
- Acquire knowledge regarding the effects of stock splits and dividends on corporate accounting and shareholder investments.
Verified Answer
ZK
Zybrea KnightJun 06, 2024
Final Answer :
B
Explanation :
A stock split is done to reduce the stock's price to keep it in a desirable trading range. A lower stock price makes the stock more affordable for retail investors and can increase liquidity. Increasing the number of shares outstanding (option A) and immediately increasing the market value of the firm's stock (option C) are not realistic motives for a stock split. The total market value of the company remains the same after a stock split, so the stock price and the number of outstanding shares both adjust accordingly.
Learning Objectives
- Acquire knowledge regarding the effects of stock splits and dividends on corporate accounting and shareholder investments.