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Author Question: Oftentimes when a company's share price is very high it will choose to split the stock price and ... (Read 110 times)

Collmarie

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on: Jun 29, 2018
Oftentimes when a company's share price is very high it will choose to split the stock price and offer each shareholder one share for each they currently hold. Explain why companies might do this and what the effect is on shareholder wealth.
 
  What will be an ideal response?

Question 2

Refer to Scenario 1 . The student has already taken 9 exams and scored a 80 on the 9th one. His average is a 70 after the 9th exam. If he scores a 70 on the tenth exam what will happen to his average?
 
  What will be an ideal response?


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sabina576

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Companies might do this if they believe that the high price of their stock is discouraging many investors from buying. The stock split does not have any impact on shareholder wealth because even though the price has fallen in half the number of shares each stockholder has in their possession has doubled. This leaves the net worth of their holdings in the company the same.

Answer to Question 2

His average after the 10th exam will remain unchanged at 70 . The reason is simple. Even though he scored lower than his previous exam score his score was equal to his average. This would have no impact on the average whatsoever.


Collmarie

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Reply 2 on: Jun 29, 2018
Thanks for the timely response, appreciate it

helenmarkerine

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Reply 3 on: Yesterday
Excellent

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