Question

If stock splits generally are used after a sharp price run-up to produce a large price reduction.

Then which of the following statements about stock splits is correct?

a. A company generally initiates a stock split to decrease the proportion of common stock contained in its capital structure.

b. Stock splits have no effect on the per-share par value of the stock.

c Stock splits should have no effect on a firm's market value.

d All else equal, a stock split generally leads to an increase in the total dividends paid by a company when the split occurs.

Answer 1

c.stock splits should have no effect on a firms market value.

A stock split usually means that the par value per share is reduced, the number of shares outstanding is increased.

The stock split does not change the stockholder's equity or overall market value of the firm.