1) Skoll Technologies is considering a 3-for-1 stock split on its common stock.
ID: 2634769 • Letter: 1
Question
1) Skoll Technologies is considering a 3-for-1 stock split on its common stock. Skoll's current stock price is $72.00 per share, and teh stock split is supposed to be only an accounting change that doesn't affect a firm's value directly. If the stock sp lit does not affect the firm's value, what is Skoll's expected stock price after the split?
a) $24.00 b) $17.00 c) $16.00 d) $18.00 e) $23.00
2) An analyst covering Skill's stock thinks the stock split is a positive signal that the firm expects its stock price to continue rising. He thinks a 3-for-1 stock split will result in a favorable reaction from the market and the frim's market captialization will increase 4%. If the market does react this way to the split, what is its expected stock price after the split?
a) $21.84 b) $23.92 c) $24.96 d) $19.76 e) $16.64
3) A stock dividend is another way of keeping the stock price from going too high. Skoll currently has 1,200,000 shares of common stock outstanding. If the firm pays a 4% stock dividend, how many shares will the firm issue to its existing shareholders?
a) 70,000 b) 75,000 c) 48,000 d) 39,000 e) 42,000
Explanation / Answer
The correct answers with explanation are:
1) Skoll Technologies is considering a 3-for-1 stock split on its common stock. Skoll's current stock price is $72.00 per share, and teh stock split is supposed to be only an accounting change that doesn't affect a firm's value directly. If the stock sp lit does not affect the firm's value, what is Skoll's expected stock price after the split?
a) $24.00
Because it is 3 for 1. 72/3 = $24.
2) An analyst covering Skill's stock thinks the stock split is a positive signal that the firm expects its stock price to continue rising. He thinks a 3-for-1 stock split will result in a favorable reaction from the market and the frim's market captialization will increase 4%. If the market does react this way to the split, what is its expected stock price after the split?
c) $24.96
$24 x 1.04 = $24.96. Due to a 4% Market Cap increase.
3) A stock dividend is another way of keeping the stock price from going too high. Skoll currently has 1,200,000 shares of common stock outstanding. If the firm pays a 4% stock dividend, how many shares will the firm issue to its existing shareholders?
c) 48,000
Number of shares issues = 1,200,000 outstanding x .04 = 48,000 new shares issued.
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