Question

Simmons Mineral Operations, Inc., (SMO) currently has 440,000 shares of stock outstanding that sell for $70 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:

  

a.	SMO has a four-for-three stock split? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

   

b.	SMO has a 10 percent stock dividend? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

   

c.	SMO has a 45.5 percent stock dividend? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

   

d.	SMO has a three-for-seven reverse stock split? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

   

e.	Determine the new number of shares outstanding in parts (a) through (d). (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

   

Answer 1

a) For every 3 share held , four shares will be issued
Ths total no of shares outstanding after split issue

3 = 4

440000 = ?

= 440000 x 4/3
= 586667 shares
Thus share price will adjust accordingly
Share price after split issue = 70 x 3/4
= 52.50 $

b) Stock dividend means new shares will be issued to exsiting share holders. Here stock dividend is 10%
Thus new shares to be issued = 440000 x 10% = 44000 shares
Thus total no. of shares after stock dividend = 440000+44000
=484000 shares
Price after stock dividend = Price per share before dividend x no. of shares before stock dividend / Total no of shares after stock dividend
= 70 x 440000 / 484000
=30800000/484000
=63.64 $

c) Stock dividend means new shares will be issued to exsiting share holders. Here stock dividend is 45.5%
Thus new shares to be issued = 440000 x 45.5% = 200200 shares
Thus total no. of shares after stock dividend = 440000+200200
=640200 shares
Price after stock dividend = Price per share before dividend x no. of shares before stock dividend / Total no of shares after stock dividend
= 70 x 440000 / 640200
=30800000/640200
=48.11 $

d) For every 7 share held , 3 shares will be issued
Ths total no of shares outstanding after split issue

7 = 3

440000 = ?

= 440000 x 3/7
= 188572 shares
Thus share price will adjust accordingly
Share price after split issue = 70 x 7/3
= 163.33 $

e)

number of shares outstanding in parts (a) = 586667 shares

number of shares outstanding in parts (b) = 484000 shares

number of shares outstanding in parts (c) = 640200 shares

number of shares outstanding in parts (d) = 188572 shares