30 August, 06:56

# Split-Div, Inc., has issued quarterly dividends of \$0.10 per share each quarter over the last few years. This quarter Split-Div initiated a 2-for-1 stock split. What is the minimum quarterly dividend the board of Split-Div should approve to avoid sending a bad signal to investors?a. \$0.02 per shareb. \$0.05 per sharec. \$0.10 per shared. \$0.20 per share

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1. 30 August, 08:14
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b. \$0.05 per share

Explanation:

A stock split is conducted by companies to make investors have additional share (s) for each share they already own. One of the reasons why a company would do this is to make each share less expensive especially if it has realized that similar shares in the industry are selling at a price significantly lower that its own shares. However, it is important to note that the value of each investor's holding remains the same.

In this case, a 2-for-1 stock split means that an investor who has 1 share will now have 2 shares. However, the cumulative value of these shares is equal to the 1 share each held before the split, so is the dividend.

If dividend for 1 share = \$0.10 in dividend

with a 2-for-1 stock split, each share should earn a minimum dividend of (0.10 / 2 = \$0.05) to avoid sending bad signals to investors