Question

Wilson Pharmaceuticals’ stock has done very well in the market during the last three years. It has risen from $45 to $70 per share. The firm’s current statement of stockholders’ equity is as follows:

   

Common stock (2 million shares issued at par value of $10 per share)	$	20,000,000
Paid-in capital in excess of par		10,000,000
Retained earnings		45,000,000
Net worth	$	75,000,000

a-1. How many shares would be outstanding after a two-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as "1.23").)
  

a-2. What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  

b-1. How many shares would be outstanding after a three-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as "1.23").)
  

b-2 What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  

c. Assume that Wilson earned $14 million. What would its earnings per share be before and after the two-for-one stock split? After the three-for-one stock split? (Do not round intermediate calculations and round your answers to 2 decimal places.)

EPS Before?

EPS after 2 for 1 split?

EPS after 3 for 1 split?
  

d. What would be the price per share after the two-for-one stock split? After the three-for-one stock split? (Assume that the price-earnings ratio of 10.00 stays the same.) (Do not round intermediate calculations and round your answers to 2 decimal places.)
  

Price after 2 for 1 split?

Price after 3 for 1 split?

Answer 1

a-1.two for one stock split means that 2 shares will be issued in place of every one held

Number of shares = 2 million*2 = 4 million

a-2 Par value = $10/2 = $5

b-1 Three for one stock split means that 3 shares will be issued in place of every one held.

Number of shares outstanding = 2 million*3 = 6 million

b-2 Par Value = 10/3 = $3.33

c.EPS before = 14 million/2 million = $7

Two for One Split = 14 million/4 = $3.5

Three for One Split = 14 million/6 million = $2.33

d.Price after 2 for 1 split = 3.5*10 = $35

After 3 for 1 split = 2.33*10 = $23.3