Nathan Detroit owns 100 shares of the drink company Monster Beverage Corp., which he purchased for...
Nathan Detroit owns 100 shares of the drink company Monster Beverage Corp., which he purchased for $120 per share. Nathan read in the Wall Street Journal that the company's board of directors had voted to split the stock 5-for-1. Just before the stock split, Monster Beverage shares were trading for $129.02. Answer the following questions about the impact of the stock split on his holdings and taxes. Nathan is in the 22 % 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 5-for-1 split?
e. What is Nathan's tax liability from the event?
Homework Answers
a.
Number of shares held by Nathan before split = 100
Number of Shares after split = 5(100) = 500 shares
b.
Value of Share after Split = 129.02/5 = $25.804
c.
Total Value of Nathan's stock holding will remain same before and after split.
100(129.02) = 500(25.804)
d.
Nathan doesn't experience any gain or loss due to split
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