Question

Stock splits Personal Finance Problem Nathan Detroit owns 400 shares of the drink company Monster Beverage Corp., which he purchased for $125 per share. Nathan read in the Wall Street Journal that the company's board of directors had voted to split the stock 2-for-1. Just before the stock split, Monster Beverage shares were trading for $134.54 Answer the following questions about the impact of the stock split on his holdings and taxes. Nathan is in the 21% federal income tax bracket. a. How many shares of Monster Beverage will Nathan own after the stock split? b. Immediately after the split, what do you expect the value of Monster Beverage to be? c. Compare the total value of Nathan's stock holdings before and after the split. What do you find? d. Does Nathan experience a gain or loss on the stock as a result of the 2-for-1 split? e. What is Nathan's tax liability from the event? a. The number of shares of Monster Beverage Nathan will own after the 2-for-1 split is shares. (Round to the nearest whole number.)

Answer 1

To find. The number of shares of Monster Beverage Nathan will own after a for- 1 stock eplit. Solution: New number of shares = Number of shares y to outstanding non stock split Ratio Putting the values, New number of shares = 400 x 2 - 800 shares (6) To find! Expected value of monster Beverage immediately after the split solution! stock stock price eplit of monster Beverage before = $184.54 stock eplit Ratio = 2:1 New share pricy - old stock pris stock split Ratio $ 134.54 & 67.27

14 To find holding before and compare the Nathan's stock after the stock split. solution : BEFORE THE STOCK SPLIT Number of shares owned = 400 share pris = $184.54 Total Nathan's stock holdings = Number of shares & share prix = 400 x $134 54 = $ 53816 AFTER THE STOCK SPLIT Number of shares Shase pricu = Total Nathan's stock owned = 800 $67.27 holding = Number of shares & = 800 * $ 67.27 = $53816 share prix we conclude that there was no gain / loss due to the stock split as Nathan's stock holdings remain the game before and after the stock split.

on total (d) No Nathan did not experience any gain or loss The stock as a result of 2-for-I split as the holdings remain the game. Purchase price of the stock = $125 stock price before the stock split = $134.54 Number of shares = 400 Net profit = (Present valry - Purchased value) & Number = ($134:54 - $125) x 400 = $3816 of shares Nathan's tax bracket = 2 % Nathan tax liablity = 21% of Net profit = 21% * $3816 = $ 801:36