Darden Inc. is contemplating a stock split. Darden’s current stock price is $45.00 per share, and it is considering a 3-for-2 stock split, A stock split is supposed to be only an accounting change that doesn’t affect a firm’s value directly. If the firm’s value is not affected by the stock split, what is Darden’s expected stock price after the split?
Researchers have observed that stock prices often react positively after stock splits. They argue that the stock split is a signal that the firm expects continued growth. If Darden’s stock price results in a 5% increase in market capitalization, what is its expected stock price after the split?
One of Darden’s managers has suggested an alternative to a stock split. He wants the company to pay a stock dividend to keep the stock price down. How many new shares would be awarded to an investor with 400 shares if a 4% stock dividend were carried out?
a. 4 shares
b. 16 shares
c. 32 shares
d. 40 shares
e. 160 shares