According to the Wall Street Journal (WSJ), there was a wide-spread speculation in February 2013 that Apple, Inc. (AAPL) would announce a 2-for-1 stock split soon. Some of Apple’s large stock holders as well as some analysts and traders believe that a 2-for-1 stock split would definitely benefit its current shareholders and raise the firm’s overall market value. Actually, Apple later announced a 7-for-1 stock split and a huge stock repurchase program. You read in chapter 14 that a 2:1 split would double the number of outstanding shares and half the earnings and dividends per share, thereby lowering the stock price. From a purely technical perspective, a 2:1 stock split simply provides additional pieces of paper and should not affect the overall wealth of shareholders (shares doubles, prices drop one-half). So you are puzzled why some shareholders, traders, and analysts adamantly believe that a stock split (2:1 or larger 7:1) will benefit Apple’s shareholders.

put yourself back in February 2013 and explain whether or not a stock split would benefit Apple’s current shareholders with at least a 5-year investment (holding) horizon. You would want to use your understanding of chapter 14 stock split material, especially the signaling aspects of stock splits, optimal stock price range theory, past empirical evidence, and. round lot stock purchase arguments, in your explanation.

Limit your answers to no more than ten (10) sentences..

Answer rating: 100% (QA)

Stock split is a process by which the company splits it... View the full answer