Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 172

Which of the following is the most likely reason an organization may decide to undertake a stock split?

Answer options

• A. To keep stock price constant.
• B. To keep shareholders' equity constant.
• C. To increase shareholders' equity.
• D. To enhance the stock liquidity.

Correct answer: D

Explanation

The correct answer is D because a stock split increases the number of shares available, making it easier for investors to buy and sell shares, thus enhancing liquidity. Options A and B are incorrect as a stock split does not aim to keep prices or equity constant, and option C is misleading because a stock split doesn't increase the total value of equity but rather divides it among more shares.