Question

STOCK SPLITS & STOCK DIVIDENDS D: Roll Corporation curently has 465,000 shares of stock outstanding that sell for $73 per share. Assuming no market imperfections or tax efects exist, what will the share price be after the following: Hint: You will need to determine the market value of the stock to answer the question Market value equals shares of stock * per share price. Roll Corporation has a five-for-three stock Split: Updated share price Roll Corporation has a 15% Stock Dividend: Updated share price Roll Corporation has a four-to-seven reverse stock split: Updated share

Answer 1

Existing Number of Shares : 465,000 shares

Existing Stock Price : $73 / share

Existing Market Value : $73 * 465000 = $33,945,000

Case 1 : A five - for - three stock split will increase the number of shares outstanding, while the market value will remain the same.

Number of shares after stock split : (465000 / 3) * 5 => 775,000 shares

New Stock price : Existing Market Value / Number of shares after stock split

= $33,945,000 / 775,000 => $43.8

Case 2 : A 15% Stock dividend will increase the number of shares outstanding, while the market value will remain the same.

Number of shares after 15% stock Dividend: 465000 + [(465000 * 15%] => 534,750 shares

New Stock price : Existing Market Value / Number of shares after 15% stock Dividend

= $33,945,000 / 534,750 => $63.48

Case 3 :  A four - to - seven stock split will decrease the number of shares outstanding, while the market value will remain the same.

Number of shares after four - to - seven reverse stock split: (465000 / 7) * 4 => 265,714 shares

New Stock price : Existing Market Value / Number of shares after four - to - seven reverse stock split

= $33,945,000 / 265714 => $127.75