Jones Company stock trades at $60 a share. The company is contemplating a 3-for-2 stock split. Currently, the company has EPS of 63.00, DPS of $0.75, and 25 million shares of stock outstanding.
Assuming that the stock split will have no effect on the total market value of its equity, what will the company's stock price be after the split?
a. How many shares of stock will be outstanding after the split?
b. Calculate EPS after the split.
c. Calculate DPS after the split.
d. Calculater price per share after the split.
e. Calculate price after the split if the PE increases by 1 point (for example, if PE was 10 prior to split, it increases 10 11 after the split)
f. Why do companies split their stock? Why might a split cause the P/E to increase?