When a Firm Announces a Two-For-One Stock Split (In the Absence

question 48

Multiple Choice

When a firm announces a two-for-one stock split (in the absence of other new information) , investors should expect that:

• A) the earnings per share will decrease by 50% but the stock price will remain constant.
• B) the stock price will decrease by 50% but earnings per share will remain constant.
• C) both the earnings per share and the stock price will remain the same.
• D)both earnings per share and the stock price will decrease by 50%.

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Definitions:

CCA Class

Refers to the classification system for capital cost allowance purposes in Canada, determining the rate at which assets can be depreciated for tax purposes.

Marginal Tax Bracket

The tax rate that applies to the final dollar of taxable income for a person or organization.

Erosion Cost

Costs that occur when a new project or investment negatively affects the revenues or profits of existing projects.

Expansion Project

Initiatives undertaken by a company to increase its existing operations' capacity or to venture into new markets or products.