Question

A stock split:

a. Is the redemption of shares of stock.
b. Is taxable.
c. Increases the par value per share.
d. Results in more shares of stock with claims to the same net assets of the firm.

Answer 1

A stock split is a process in which a company divides its existing shares into multiple shares, increasing the number of shares outstanding while maintaining the same total value. Each shareholder receives more shares, but the value of each individual share decreases proportionally.

Step-by-step explanation:

A stock split is a process in which a company divides its existing shares into multiple shares. The main purpose of a stock split is to increase the number of shares outstanding while maintaining the same total value of the company. This means that each shareholder will receive more shares, but the value of each individual share will decrease proportionally.

For example, if a company performs a 2-for-1 stock split, a shareholder who previously held 100 shares would now hold 200 shares. However, the price of each share would be halved.

A stock split does not affect the value of the company or the net assets of the firm. It is a way for companies to make their shares more affordable and increase liquidity in the market.