Shadows, Inc., had shares outstanding that were valued at $120 per share before a two-for-one stock split.
Question:
Shadows, Inc., had shares outstanding that were valued at $120 per share before a two-for-one stock split. After the stock split, the shares were valued at $62 per share. If we accept that the firm’s financial maneuver did not create any new value, then why might the market value of the shares increase?
Step by Step Answer:
We know that the stock split did not create value for investors by itself Therefore there must be ...View the full answer
Fundamentals of Corporate Finance
ISBN: 978-1119371403
4th edition
Authors: Robert Parrino, David S. Kidwell, Thomas Bates
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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