The Effect of a Bonus Issue on the Market Value

question 41

Multiple Choice

The effect of a bonus issue on the market value of an entity's equity is:

• A) The number of shares are increased, meaning that each shareholder benefits from the conversion of retained earnings into additional shares. Each shareholder benefits proportionately equally, however, so their relative positions remain the same.
• B) The total equity of the entity remains the same, apart from the reclassification of reserves used to make the bonus issue. Each shareholder benefits from the ability to sell off the additional shares provided, so the market value of the entity remains the same.
• C) Because shareholders often respond to a bonus issue by selling off the 'windfall' shares, the market price is observed to often drop as a result of the increased supply of shares for sale.
• D) Theoretically it should have no effect, but empirical evidence suggests that a bonus issue is used to signal an increase in dividends, so the total market value of the entity does sometimes increase.
• E) None of the given answers.

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Definitions:

Regulation Of Hunger

The physiological and psychological processes that govern the sensation of hunger, including the body's mechanisms for maintaining energy balance.

Leptin

A hormone produced primarily by fat cells that is involved in the regulation of appetite and metabolism, signaling satiety to the brain.

Hunger Regulation

The physiological and psychological processes that manage the body's energy needs through signals that dictate when to eat and when to stop eating.

Leptin Levels

Refers to the concentration of leptin, a hormone produced by fat cells that regulates appetite and energy balance in the body, signaling hunger reduction and promoting energy expenditure.