Why investors might be willing to pay an increasing price

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International Company is a global leader in telephone, data, wireless , and wire-line solutions for the Internet. In July 2010, Intonational Company announced a stock dividend and a 2 for-1 stock split. In January, and again in May 2011, International Company announced two more 2-for- 1 stock splits. International Company's common shares now number 3 billion.

From 2010 to 2011 International company's revenue grew by 40%. Its share price ranged from $20 to $123. Interestingly its earnings (loss ) per share was only ($ 0.95) in fiscal 2011 and ( $0.15) in fiscal 2010. Its dividend yield is less than 1%.

Required:

Problem (a) Explain the different effects that a stock dividend and stock split would have on International Company's financial position and number of shares .

Problem (b) Why do you think the company has split its common shares so often over the past few years?

Problem (c) The company reported a loss per share in both 2010 and 2011 , yet its market price per share was positive and increasing . Can you explain why investors might be willing to pay an increasing price for the company's shares despite it poor performance and low dividend yield ?

Reference no: EM132735840

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