Idle Time Gaming Announced a 2-For-1 Common Stock Split for Investors

question 79

Multiple Choice

Idle Time Gaming announced a 2-for-1 common stock split for investors on record. Which of the following will occur?

• A) The stock price will increase to reflect the value of two shares for every one share.
• B) Each share will be worth ½ of its previous value, but shareholders' total value of Idle Time Gaming will remain the same.
• C) The value of Idle Time common stock will remain the same, for a short period of time, and then experience a guaranteed growth spurt.
• D) The shareholders will sell their shares immediately after the split and take their capital gains, as well as provide others an opportunity to invest in Idle Time Gaming.

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Definitions:

Variable Costs

Expenses that are directly tied to the rate of goods produced or services sold, such as the cost of materials and labor involved.

Fixed Costs

Costs that remain constant for a business over a period, regardless of the level of goods or services produced.

Composite Units

Units formed by combining different but related items, often used in production or inventory management.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much contributes to covering fixed costs and generating profit.