Question #48
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 18
Status: Unattempted
Correct Answer: A
Question
Financial managers utilize stock splits and stock dividends because they perceive that:
Answer Choices:
A. investors will double the share price if there is a 20% stock dividend
B. brokerage fees paid by shareholders will be reduced
C. an optimal trading range exists
Explanation
Although there is little empirical evidence to support the contention, there is nevertheless
a widespread belief in financial circles that an optimal price range exists for stocks.
"Optimal" means that if the price is within this range, the price/earnings ratio, price/sales
and other relevant ratios will be maximized. Hence, the value of the firm will be
maximized.