Question

Shares in Raven Products are selling for $75 per share. There are one million shares outstanding. What will be the share price in each of the following situations? Ignore taxes. (Round your answers to the nearest cent.)

            

a.	The stock splits five-for-four.

Price    $

       

b.	The company pays a 23% stock dividend.

Price    $

                

c.	The company repurchases 125,000 shares.

Price    $

Answer 1

Price per Share = $75

Number of Shares outstanding = 1,000,000

Market Capitalization = 75,000,000

Stock Price = Market Capitalization/Number of Shares outstanding

a.

Stock Split for 5 for 4

Number of Shares after split = 5*(1,000,000/4) = 1,250,000

Stock Price = (75*1000000)/1250000

Stock Price = $60

b.

Stock Dividend of 23%

Number of shares after stock Dividend = 1.23(1000000) = 1,230,000

Stock Price = (75*1000000)/1230000

Stock Price = $60.98

c.

Repurchase of 125,000 shares

Number of Shares after repurchase = 1,000,000 - 125,000 = 875,000

Stock Price after repurchase = (75*1000000)/875000

Stock Price = $85.71