Question

This topic comes from both Chapter 13 and 15. It is an investment topic, but you will need to refer to Chapter 13 to understand stock splits. You are a financial consultant. Your client owns 200 shares of Chipotle Mexican Grill. This corporation has never had a stock split. Write a message to your client discussing the possibility of a stock split. Explain to your client how a 2:1 split might affect their portfolio of stocks. You will need to do some research on stock splits and study the section on stock-splits from the book in Chapter 13. The Chapter 13 PowerPoint slides are a good resource. Your message must be professionally written, using the proper voice for your audience. It must be completely free of spelling and grammatical errors. Remember to be thorough, but concise, so a maximum of two paragraphs. Use actual Chipotle stock prices in your explanation and focus on what the client needs.

Answer 1

Stock splits are a way a company's board of directors can increase the number of shares outstanding while lowering the share price. They're a tactic for making a stock more attainable to smaller investors, particularly when its price has ratcheted sky-high over time.During a stock split, the company announces that it will be issuing a certain number of new shares for each existing share. Though this doesn’t directly change the market capitalization of the company as a whole, it does affect the price per share often substantially.

In the given question, it was mentioned a 2: 1 Stock Split. It means that every share is Split into two Shares.

Client is Currently holding 200 Shares of Chipotle Mexican Grill Corporation. The Current Market Price is around $890.

Therefore Portfolio value of Client will be 200 Shares * $890 =$178,000. Post Share split the number of Shares will become 200*2 =400 Shares. But the Price of the share will comes around to $890 / 2 =$445. The total Portfolio value will remain unchanged.i.e 400 shares*$445 per share= $178,000. The Sharesplit does not effect the Portfolio value but the Purpose is that, it will increase the liquidity of shares in the market. Because the reduced share price will be accessible to more number of investors . Thereby the possibility of rapid increase in the price of share.