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1. Suppose a company fully financed with equity has a market cap of $1 million. There...

1. Suppose a company fully financed with equity has a market cap of $1 million. There are 10,000 shares outstanding. What is the price per share? (Report the answer without the $ sign.)

2. Suppose a company fully financed with equity has a market cap of $1 million. There are 10,000 shares outstanding. If it receives $100,000 as part of a legal settlement what will be the percentage change in the market cap of the company after the receipt of $100,000?  Report the answer as a number without the % sign.

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Answer #1

Answer-

Q 1)

Company is having a market capitalization = $ 1 million = $ 1000000
Number of shares outstansding = 10000
Price per share = Market capitalization / Number of shares outstanding

Price of share = $ 1000000 / 10000 = $ 100

Q 2)  

Company's market capitalization = $ 1 million = $ 1000000
Number of shares outstanding = $ 10000
Price of share = $ 1000000 / 10000 = $ 100
Amount obtained through legal settlement = $ 100000
The market capitalization increases by $ 100000 as the share price increases.
The new market capitalization = $ 1000000 + $ 100000 = $ 1100000

Therefore the fraction change in market capitalization
= ($ 1100000 - $ 1000000) / $ 1000000
= $ 100000 / $ 1000000
= 0.10
The percentage change in market capitalization = 0.10 x 100 % = 10 %

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