Question

Which of the following statements about a 3-for-1 stock split is true?

1) It will have no effect on total stockholders' equity.
2) It will triple the amount of total stockholders' equity.
3) It requires the company to distribute cash.
4) It will triple the market price of the stock.

Answer 1

A 3-for-1 stock split has no effect on total stockholders' equity.

Step-by-step explanation:

In a 3-for-1 stock split, each shareholder receives 3 new shares for every 1 share they own. This means that the total number of shares in circulation increases, but the value of each individual share decreases proportionally. Therefore, statement 4) It will triple the market price of the stock is false.

Furthermore, a stock split has no direct impact on the company's total stockholders' equity. The split does not result in any additional cash being distributed to the shareholders, so statement 3) It requires the company to distribute cash is also false.

Correct statement: 1) It will have no effect on total stockholders' equity.