Which of the Following Statements Is CORRECT

question 8

Multiple Choice

Which of the following statements is CORRECT?

• A) back before the sec was created in the 1930s, companies would declare reverse splits in order to boost their stock prices. however, this was determined to be a deceptive practice, and it is illegal today.
• B) stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits.
• C) when a company declares a stock split, the price of the stock typically declinesσby about 50% after a 2-for-1 splitσand this necessarily reduces the total market value of the equity.
• D) if a firm's stock price is quite high relative to most stocksσsay $500 per shareσthen it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50. moreover, if the price is relatively lowσsay $2 per shareσthen it can declare a "reverse split" of say 1-for-25 so as to bring the price up to somewhere around $50 per share.
• E) when firms are deciding on the size of stock splitsσsay whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used.

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Definitions:

Customer Loyalty

A measure of a customer's willingness to continue buying from or patronizing a brand or company over time.

Customer Needs

The specific desires, requirements, or preferences of customers that businesses aim to fulfill with their products or services.

Differentiated Marketing

A marketing strategy in which a company targets several market segments with a different offering for each.

Unit Costs

The cost incurred by a company to produce, store, and sell one unit of a particular product or service.