Alta Gems stock is currently trading at $36 a share. The company believes its primary clientele can afford to spend between $2,000 and $2,500 to purchase a round lot of 100 shares. This company should consider a:
A) reverse stock split.
B) liquidating dividend.
C) stock dividend.
D) stock split.
E) special dividend.

Question

Quizplus · Accepted Answer

A stock split would reduce the share price to a more affordable level for the company's target clientele. By increasing the number of shares outstanding and reducing the share price, it makes it easier for investors to buy a round lot of 100 shares, which is a common trading unit. A reverse stock split, which reduces the number of shares outstanding and increases the share price, would make the stock even less affordable for the company's target clientele. A liquidating or special dividend would not address the issue of the high share price, while a stock dividend would only increase the number of shares outstanding without changing the price. Therefore, a stock split is the best option in this scenario.

Alta Gems Stock Is Currently Trading at $36 a Share