Question

ABC's capital structure is as follows: Common Stock ($4 par) $90 mil Paid-in capital in excess...

ABC's capital structure is as follows:

Common Stock ($4 par) $90 mil

Paid-in capital in excess 300 mil

Retained Earnings 700 mil

Currently, the stock is selling at $260. If the firm does a 5 for 1 split, which of the following would be correct after the split?

  1. Par value = $20

    Number of shares = 112.5 mil

    Stock price = $52

    Par Value = $.80

    Number of shares = 112.5 mil

    Stock price = $52

    Par value = $.80

    Number of shares = 450 mil

    Stock price = $52

    Par value = $20

    Number of shares = 112.5 mil

    Stock price = $208
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Answer #1

Before Stock Split:

Par value per share = $4.00

Number of shares = Common stock / Par value per share
Number of shares = $90 million / $4.00
Number of shares = 22.50 million

Stock price per share = $260.00

After Stock Split:

Firm does a 5 for 1 stock split which means 5 shares are given for each share.

Par value per share = $4.00 * (1/5)
Par value per share = $0.80

Number of shares = 22.50 million * 5
Number of shares = 112.50 million

Stock price per share = $260.00 * (1/5)
Stock price per share = $52.00

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