CAD CoIs Considering a 10-For-4 Stock Split

question 38

Multiple Choice

CAD Co.is considering a 10-for-4 stock split.The current stock price is $57.00 per share,and the firm believes that its total market value would increase by 3% as a result of the improved liquidity that it thinks would follow the split.What is the stock's expected price following the split?

• A)$22.18
• B)$23.48
• C)$35.44
• D)$37.21

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Definitions:

Deadweight Loss

Deadweight loss occurs when an economy's total welfare is not maximized, resulting from inefficiencies such as taxes or subsidies that distort market equilibrium.

Pure-monopoly Market

A market structure where a single firm has the exclusive control over the supply of a product or service, with no close substitutes available, allowing for price setting.

X-inefficiency

The difference between actual and minimum possible input costs, often occurring due to a lack of competitive pressure and inefficiencies in production.

Minimum Possible Average Cost

The lowest average cost at which a firm can produce its output in the long run, given its technology and factor prices.