Question

Wilsan Pharmaceuticals' slock has done very well in the market during the last three years. It has risen fram $85 to 590 per share. The frms current statement of sockholders equity is as fallows hare. The Common stock (2 milion sh re issued t par vakue of S 10 per stare) Pad-in capita in axccss ofpar Ratained eamings 20,000,000 12,000,000 48,000,000 Net worth S 80,000,000 a-1. How many shares would be outstanding after a two-fcr-ane stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as "1.23" r of shares a-2. What would be its par value? Do not round intermediate calculations and round your answer to 2 decimal places) aluc b-1. Haw many shares wuld be cutstancing ater a three-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g. $1.23 million should be entered as 123")) r of shares b2 what would be its par value? İDo not round intermediate calculations and round your answer to 2 decimal places.) aluc c.Assume that Wilson earned $10 milian. What would its earnings per share be before and after the two-for-one stock split? After the three-for-ane stock split? (Do nat round intermediate calculations and round your answers to 2 decimal places.) EPS before EPS ser 2-fer-1 spil d. What would be the price per share after the two-for-one stock spit? After the three-for-one stock split? (Assume that the price-samings ratio of 18.00 stays the same.) (Do not round intermediate calculations and round your answers to 2 decimal places) Prica aftor 2-for-1 split Pricc after 3 for-1 split

Answer 1

a-1). Initial shares outstanding = 2 million = 2,000,000

After the 2:1 stock split, shares outstanding will be 2,000,000*(2/1) = 4,000,000 or 4 million

a-2). Par value of the stock:

Initial total par value of the stock = par value per share* initial shares outstanding

= 10*2,000,000 = 20,000,000

The total par value will not change after the stock split, so the new par value will be

total par value/shares outstanding after the 2:1 split = 20,000,000/4,000,000 = $5 per share

b-1). Shares outstanding after a 3:1 split = 2,000,000*(3/1) = 6,000,000 or 6 million

b-2). New par value per share = 20,000,000/6,000,000 = $3.33 per share

c). EPS before = earnings/shares outstanding = 10 million/2 million = $5.00

EPS after 2:1 split = earnings/shares outstanding = 10 million/4 million = $2.50

EPS after 3:1 split = earnings/shares outstanding = 10 million/6 million = $1.67

d). Price per share after the 2:1 split:

Initial price per share (p) = 90

Initial shares outstanding (s) = 2,000,000

Initial market capitalization (M) = p*s = 90*2,000,000 = 180,000,000

Total shares after 2:1 stock split (n) = 4,000,000

Therefore, price per share = M/n = 180,000,000/4,000,000 = $45.00

Price per share after 3:1 split:

Total shares after 3:1 split (n) = 6,000,000

Price per share = M/n = 180,000,000/6,000,000 = $30.00