The Effect of a Bonus Issue on the Market Value

question 41

Multiple Choice

The effect of a bonus issue on the market value of an entity's equity is:

• A) The number of shares are increased, meaning that each shareholder benefits from the conversion of retained earnings into additional shares. Each shareholder benefits proportionately equally, however, so their relative positions remain the same.
• B) The total equity of the entity remains the same, apart from the reclassification of reserves used to make the bonus issue. Each shareholder benefits from the ability to sell off the additional shares provided, so the market value of the entity remains the same.
• C) Because shareholders often respond to a bonus issue by selling off the 'windfall' shares, the market price is observed to often drop as a result of the increased supply of shares for sale.
• D) Theoretically it should have no effect, but empirical evidence suggests that a bonus issue is used to signal an increase in dividends, so the total market value of the entity does sometimes increase.
• E) None of the given answers.

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Definitions:

HR Budgets

Financial plans that outline the expected costs related to the management and development of human resources within an organization, including recruitment, training, salaries, and benefits.

HR Demand Requirement

The specific need or quantity of human resources that an organization requires to meet its objectives.

Short-Run Time Periods

A duration in which at least one input (like capital) in the production process is fixed, and only some costs can be varied.

Staffing Table

A Staffing Table is a document or tool used in human resources planning that outlines the current and future staffing needs of an organization, including positions and number of employees required.