Question

common stock with a price of $80.00 per share and 200,000 shares of common stock outstanding....

common stock with a price of $80.00 per share and 200,000 shares of common stock outstanding. Their Chief Financial Officer believes that a 2-for-1 Stock-Split would make the firms stock more liquid.

    1. What is the Old Market-Cap?
    1. What is the New Market Price and New Shares Outstanding?
    1. How much did the Market-Cap Change?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Sol:

Outstanding shares = 200000

Stock price = $80 per share

Stock split ratio = 2 for 1 means an additional share will be given for each share held by a shareholder.

a)

Old market cap = Outstanding shares x Stock price

Old market cap = 200000 x $80 = $16,000,000

b)

New Outstanding shares = 200000 x 2 = 400000

New market price = $80 / 2 = $40

c)

New market cap = New Outstanding shares x New Stock price

New market cap = 400000 x $40 = $16,000,000

After a stock split, the stock price will be reduced in the ratio of the split, and the number of shares outstanding will increased as per the ratio. Therefore, although the number of outstanding shares and the stock price will change, the market capitalization will remains constant and unchanged.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The current market price of the stock is $70 per share. Merriam has 900,000 shares authorized...
The current market price of the stock is $70 per share. Merriam has 900,000 shares authorized and 100,000 shares issued and outstanding of $2 par value common stock. On December 1st, 2018, the company declared and issued a 2-for-1 stock split. 1. How did the company record the stock split in the accounting records on December 1st? 2. After the stock split, determine the new value for each of the following items. a. Market Price/Share b. Impact on Stockholder’s Equity...
A corporation, which had 24,100 shares of common stock outstanding, declared a 4-for-1 stock split. a....
A corporation, which had 24,100 shares of common stock outstanding, declared a 4-for-1 stock split. a. What will be the number of shares outstanding after the split? shares b. If the common stock had a market price of $88 per share before the stock split, what would be an approximate market price per share after the split? $ per share c. Journalize the entry to record the stock split. If no entry is required, type "No Entry" and leave the...
Lay's Meat Market has 795 shares of stock outstanding at a price per share of $1.11....
Lay's Meat Market has 795 shares of stock outstanding at a price per share of $1.11. What will the price per share be if the firm declares a 5-for-25 reverse stock split?
A corporation, which had 12,000 shares of common stock outstandingdeclared a 6-for-1 stock split. What will...
A corporation, which had 12,000 shares of common stock outstandingdeclared a 6-for-1 stock split. What will be the number of shares outstanding after the split? ) If the common stock had a market price of $240 per share before the stock split, what would be an approximate market price per share after the split?
Advance Manufacturing has 8.2 million shares of common stock outstanding. The current share price is $50,...
Advance Manufacturing has 8.2 million shares of common stock outstanding. The current share price is $50, and the book value per share is $8. The company has 200,000 9% coupon bonds outstanding, $1,000 par value, 15 years to maturity, currently selling for 97% of par, and the bonds make annual payments. Suppose the company’s stock has a beta of 1.3. The risk free rate is 3.5%, and the market risk premium is 7%. The company’s tax rate is 35%. Please...
Air Taxi, Inc. currently has 576,000 shares of stock outstanding that sell for $97 per share....
Air Taxi, Inc. currently has 576,000 shares of stock outstanding that sell for $97 per share. Assuming no market imperfections or tax effects exist, what will the share price be after: BTC has a three for one stock split? BTC has a 18 percent stock dividend? BTC has a 51.6 percent stock dividend? BTC has a three-for-six reverse stock split? Determine the new number of shares outstanding in parts (1) through (4).
Common stock:   1 million shares outstanding, $40 per share, $1 par value, beta = 0.8 Preferred...
Common stock:   1 million shares outstanding, $40 per share, $1 par value, beta = 0.8 Preferred stock:   200,000 shares outstanding, $44 per share, $3.50 per share annual dividend Debt: 10,000 bonds outstanding, $1,000 face value, 8% coupon, 20 yrs to maturity, price = 112% of par Other: Market return = 14.6%, risk-free rate = 6%, company tax rate = 28% What is this company's WACC? A. 8.67% B. 10.67% C. 12.33% D. 9.50% E. 7.33%
Western Electric has 25,000 shares of common stock outstanding at a price per share of $65...
Western Electric has 25,000 shares of common stock outstanding at a price per share of $65 and a rate of return of 13.70 percent. The firm has 6,600 shares of 6.40 percent preferred stock outstanding at a price of $88.00 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $362,000 and currently sells for 104 percent of face. The yield to maturity on the debt is 7.66 percent. What...
Walker Machine Tools has 5.2 million shares of common stock outstanding. The current market price of...
Walker Machine Tools has 5.2 million shares of common stock outstanding. The current market price of Walker common stock is $46 per share rights-on. The company’s net income this year is $16.00 million. A rights offering has been announced in which 520,000 new shares will be sold at $40.50 per share. The subscription price plus eight rights is needed to buy one of the new shares. a. What are the earnings per share and price-earnings ratio before the new shares...
Walker Machine Tools has 6.7 million shares of common stock outstanding. The current market price of...
Walker Machine Tools has 6.7 million shares of common stock outstanding. The current market price of Walker common stock is $76 per share rights-on. The company’s net income this year is $23.50 million. A rights offering has been announced in which 670,000 new shares will be sold at $70.50 per share. The subscription price plus nine rights is needed to buy one of the new shares. a. What are the earnings per share and price-earnings ratio before the new shares...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT