Suppose that a company splits its stock two-for-one, meaning it doubles the number of shares outstanding. Each shareholder is given a new share for each one previously held, so that the number of shares held doubles. The split is not associated with any change in the firm’s investment policy.
a. Has the firm acquired any new assets as a result of the split?
b. Has anything happened to the value of the firm’s real assets (its projects)?
c. What will happen to earnings per share?
d. What should happen to the firm’s stock price?
e. What should happen to the dollar value of the shareholder’s stock? Has investor wealth changed?