Netincome would have been higher by 116 85 and 114 for

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: pre­stock split value. b. The stock market often views the declaration of a stock split as a positive signal about the corporation. For example, the market often perceives a stock split as a signal from management that they believe that they can maintain the price of the stock despite the stock split. In addition, some companies increase their dividend per share soon after splitting their stock. Such positive signals, in turn, increase demand for the company's stock, which drives up the price of the stock. In addition, stock splits would be expected to cause the market price per share to drop once the stock split actually takes place to reflect the additional shares of stock outstanding. The lower market price would make the stock more affordable to more investors, which should increase demand for the stock and drive up the price. c. Theoretically, the value of a company's stock equals the present value of the cash flows the stock market expects an investor to generate from an equity investm...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online