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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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Most firms like to have their stock selling at a high P/E ratio, and they also like to have extensive public ownership (many different shareholders). Explain how stock dividends or stock splits may help achieve those goals.

Summary Introduction

To explain: The way to achieve the given goals with the help of stock dividend or stock split.

Introduction:

Stock split: When a company has large number of outstanding shares, then the board of directors decides to issue more shares to current shareholders it results in decreasing the number of outstanding shares and increasing the shares prices.

Explanation
  • Every stock has an optimum price at which WACC is minimized that results in giving rise to maximum price for the provided earnings. If a stock dividend or stock split is used by the firm it can keep its shares to sell at this price range and later stock dividend and stock split will help the firm to maintain a high P/E ratio...

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