If a Firm Wants to Decrease the Per-Share Price of Its

question 3

Multiple Choice

If a firm wants to decrease the per-share price of its common stock, which of the following actions should it take? Assume everything else remains constant. 

• A)Initiate a 1-for-3 reverse stock split
• B)Initiate a 2-for-1 stock split
• C)Increase the per share dividend that it pays
• D)Repurchase some of its stock, and use the proceeds to pay off long-term bonds
• E)Issue a substantial amount of new bonds to finance capital budgeting projects that have negative net present values (NPVs)

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Definitions:

Contribution Margin

The amount remaining from sales revenues after all variable expenses are paid, contributing towards covering fixed costs and profit.

Discontinue

To stop making or providing a product or service, often as a strategic decision by a company.

Sunk Cost

Expenses that have already been incurred and cannot be recovered or altered, which should not affect future business decisions.

Materials Costs

The expense incurred by acquiring raw materials necessary for producing goods, excluding indirect materials like maintenance supplies.