Marketing
Assignment A
Q1.What is stock split, What are its advantages?
Ans) A corporate action in which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split did not add any real value.
A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed.
A stock split has certain advantages which are mention below
.
1. More Shares Are Available So You Can Have a Wider Ownership Base: Literally the more a stock has been split, the larger the quantity of individual shares that exist. This potentially allows a wider number of people to own the shares. This has second order consequences, such as the more people who own your stock, the more a company can potentially be protected from government regulations. (In the Robber Baron days, some companies would split their stock so as to sell it to politicians and judges, in order to provide them political and regulatory advantages or protection. Nowadays we refer to this particular form of ownership as corruption.)
2. Investor Expectations of Price Ranges: Investors are often puzzled by the cost of each share of a stock that hasn't been split, because the significant majority of companies do split their shares if their value goes over $200 per share or so. By splitting its stock a company can avoid this confusion.
3. Certain Investors Prefer Stocks That Keep Splitting: Since very successful companies (Intel, Microsoft, etc) generally keep splitting their stock every few years during their rapid growth phase, there is an aura of
Q1.What is stock split, What are its advantages?
Ans) A corporate action in which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split did not add any real value.
A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed.
A stock split has certain advantages which are mention below
.
1. More Shares Are Available So You Can Have a Wider Ownership Base: Literally the more a stock has been split, the larger the quantity of individual shares that exist. This potentially allows a wider number of people to own the shares. This has second order consequences, such as the more people who own your stock, the more a company can potentially be protected from government regulations. (In the Robber Baron days, some companies would split their stock so as to sell it to politicians and judges, in order to provide them political and regulatory advantages or protection. Nowadays we refer to this particular form of ownership as corruption.)
2. Investor Expectations of Price Ranges: Investors are often puzzled by the cost of each share of a stock that hasn't been split, because the significant majority of companies do split their shares if their value goes over $200 per share or so. By splitting its stock a company can avoid this confusion.
3. Certain Investors Prefer Stocks That Keep Splitting: Since very successful companies (Intel, Microsoft, etc) generally keep splitting their stock every few years during their rapid growth phase, there is an aura of