00:01
So here we're talking about stock splits and we need to evaluate these statements, right? so in a, we have a 3 -1 split, right? and that implies the price should fall, but the number of shares should rise.
00:18
This is exactly what should happen, right? the idea is that one old share is, ooh, a little lag there, is equal to three new shares.
00:30
So you're tripling the number of shares.
00:32
Automatically, the number of shares will rise, right? because each old share is becoming three new shares.
00:36
The number of shares is increasing dramatically.
00:41
But if this was worth, say, 60, each of the three new shares would worth 20 because the value of the company has it changed.
00:48
So a is true.
00:50
Let's think about b.
00:53
B says the repurchase is a signal.
00:58
This is very true, right? this is a very common way to think about stock markets in general, right? managers have incentives.
01:11
And managers have incentives to make the company grow in value.
01:16
One way that the managers can make the company grow in value is to buy back shares when the company is cheap.
01:23
Because later on, when the company makes profits, those profits will be spread across a smaller number of shares, right? so if the company is buying back stock, why else would they be doing it? it must be the case that the managers think the stock is cheap.
01:47
C, repurchases are equal to no taxes.
01:52
Or let's say equal no dividends.
01:57
Sorry, exactly...