Which of the Following Is the Most Probable Way in Which

question 31

Multiple Choice

Which of the following is the most probable way in which a shareholder will benefit from a stock split?

• A) The immediately lower share price will attract enough increased interest in the stock to cause the market price to increase on a more consistent basis.
• B) The immediately higher number of shares that an investor owns immediately increases the investor's wealth.
• C) The shareholder can use the immediately increased wealth to borrow more money to buy even more shares at the immediately lower market price.
• D) A shareholder can lose money after a stock split if the market believes that the split was an artificial way of attracting attention to a company that is not well managed.

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Definitions:

Gross Margin

The difference between sales revenue and the cost of goods sold, indicating the profitability of a company's core activities excluding overhead.

Contribution Margin

The amount of revenue remaining after variable costs have been deducted, which contributes to covering fixed costs and generating profit.

Opportunity Cost

The expense associated with missing out on the second-best option when a choice is made.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue is available to cover fixed costs and generate profit.