Question
On 27th June, 2015. The Nothing at all Plc. announced a stock split. The book value of the shares before the split is 10 EUR.
On 27th June, 2015. The Nothing at all Plc. announced a stock split. The book value of the shares before the split is 10 EUR. All shareholders will get 4 new shares instead of their old one. In the meantime they also announced that the yearly dividend will be raised from the usual 15 EUR into 20 EUR. (Dividends will be paid before splitting, for the old shares.) Before these announcements the market price of the share was 80 EUR, the company has 1,000,000 shares ourstanding. The companys investment- and financing policy remained unchanged. The financial markets are perfect. a)What will be the expected price of the share after the dividend payout and after split? b)Lets assume, that the company does not want to pay any dividends. What split should be done, so as to get the same final price?
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