Question

Problem 14-07
Stock Split

Suppose you own 4,000 common shares of Laurence Incorporated. The EPS is $10.00, the DPS is $2.75, and the stock sells for $95 per share. Laurence announces a 2-for-1 split. Immediately after the split, how many shares will you have?

What will the adjusted EPS and DPS be? Round your answers to the nearest cent.

EPS	$
DPS	$

What would you expect the stock price to be? Round your answer to the nearest cent.

$

Answer 1

(a)-Number of shares outstanding immediately after the split

Number of shares outstanding immediately after the split = Number of shares outstanding x Stock-split Ratio

= 4,000 Shares x 2/1

= 8,000 Shares

(b)-Adjusted EPS and DPS

EPS	$5.00 per share
DPS	$1.38 per share

Adjusted EPS

Adjusted Earnings per share = EPS before stock split x Stock split Ratio

= $10.00 per share x ½

= $5.00 per share

Adjusted DPS

Adjusted Dividend per share = DPS before stock split x Stock split Ratio

= $2.75 per share x ½

= $1.38 per share

(c)-Expected stock price after stock split

Expected stock price after stock split = Selling price per share before stock split x Stock split Ratio

= $95.00 per share x ½

= $47.50 per share