Which of the Following Statements About Stock Splits Is Correct

question 121

Multiple Choice

Which of the following statements about stock splits is correct?

• A) If a company has a 2-for-1 split, the price will be doubled.
• B) If a company has a 3-for-1 split, the price will increase by a factor of 3.
• C) If a company has a 4-for-1 split, the new number of shares will be four times as many as before the split.
• D) If a company has a 5-for-1 split, the new number of shares will be equal to the old number of shares divided by 5.
• E) None of these is correct.

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Definitions:

Sustainable Rate Of Growth

The sustainable rate of growth is the maximum rate at which a company can grow its revenues, earnings, and dividends without increasing its financial leverage or equity capital.

Sales Proportional

A method or metric that relates a company's sales to another factor, measured in a ratio or percentage form to assess efficiency or performance.

Debt And Equity

Refers to the two primary ways of financing a company's operations and growth, through borrowing (debt) or selling ownership interests (equity).

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings and dividends without needing to increase equity or borrowings.