Darden Inc. Is contemplating a stock split. Darden\'s current stock price is $45
ID: 2654252 • Letter: D
Question
Darden Inc. Is contemplating a stock split. Darden's current stock price is $45.00 per share, and it is considering a 3-for-2 stock split. A stock spilt Is supposed to be only an accounting change that doesn't affect a firm's value directly. If the firm's value Is not affected by the stock split, what is Darden's expected stock price after the split? $22.50 $30.00 $37.50 $42.50 $67.50 Researchers have observed that stock prices often react positively after stock splits. They argue that the stock spilt is a signal that the firm expects continued growth. If Darden's stock price results in a 5% increase in market capitalization, what is its expected stock price after the split? $30.00 $31.50 $37.50 $45.00 $67.50 One of Darden's managers has suggested an alternative to a stock split. He wants the company to pay a stock dividend to keep the stock price down. How many new shares would be awarded to an investor with 400 shares if a 4% stock dividend were carried out? 4 shares 16 shares 32 shares 40 shares 160 sharesExplanation / Answer
1) Split 3 shares for every 2 shares held
Current price of the stock = 45
Value of stock after split =45*2/3 i.e 30 per share
2) Growth = 5%
Stock price after the split = Stock price * 105%
= 30*105% i.e 31.50
3) Dividend on 400 shares = 400*45*4% i.e 720
Stock price = 45
Number of shares to be awarded = 720/45 i.e 16 shares
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