4. Stock splits and stock dividends Skoll Technologies is considering a 3-for-1

Question

4. Stock splits and stock dividends Skoll Technologies is considering a 3-for-1 stock split on its common stock. Skoll's current stock price is $45.00 per share, and the stock split is supposed to be only an accounting change that doesn't affect a firm's value directly. If the stock split does not affect the firm's value, what is Skoll's expected stock price after the split? $24.00 $23.00 $16.00 $15.00 $18.00 An analyst covering Skoll'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 firm's market capitalization will increase by 4%. If the market does react this way to the split, what is its expected stock price after the split? $16.64 $24.96 $15.60 $21.84 $23.92 A stock dividend is another way of keeping the stock price from going too high. Skoll currently has 1,300,000 shares of common stock outstanding. If the firm pays a 3% stock dividend, how many shares will the firm issue to its existing shareholders? 60,000 75,000 39,000 45,000 52,000

Explanation / Answer

4)

a) Expected Stock Price after stock split = 45*1/3 = $ 15

Answer

D) $ 15

b) Expected Stock Price after stock split = 45*1/3 *1.04 = 15.60

Answer

C) $ 15.60

c) No of Share issued to its existing shareholder = 1300000*3% = 39000

Answer

C) 39000

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