Saskatchewan Corp

question 57

Multiple Choice

Saskatchewan Corp.is considering a 15-for-3 stock split.The current stock price is $86.00 per share,and the firm believes that its total market value would increase by 2% 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)$17.20
• B)$89.00
• C)$35.44
• D)$17.54

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Definitions:

Net Present Value

A financial metric that calculates the value of a series of cash flows by discounting them to the present day, taking into account the time value of money.

Cost of Capital

The average rate a firm pays its investors for the use of their funds adjusted for taxes and administrativecosts. Also called the WACC forweighted average cost of capital.Distinguish from the costs of individualcapital components that are the adjustedrates paid on debt, preferred stock, andcommon equity. The component costs are(weighted) averaged to get the WACC

Shareholder Wealth

The overall value and financial health perceived by the shareholders of a company, often judged by the price of the company's stock and dividends paid.

Exceeds Cost

This refers to when the expenses associated with a project or operation surpass the initially estimated costs.