Question

6. Fung Manufacturing, Inc. (FMI), currently has 275000 shares of stock outstanding that sell for $75 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:

      a.         RMO has a two-for-five reverse stock split?

      b.         RMO has a 6 percent stock dividend?

      c.          RMO has a 18 percent stock dividend?

      d.         RMO has a nine—for-two stock split?

      e.         Redo parts a to d and determine the new number of shares.

Answer 1

Stock split is splitting of value of shares in such a way that the number of common shares increases by stock split ratio and market value of share decreases with stock split ratio
The market value before and after stock split remains same.
Under reverse stock split number of shares decreases and market price increases.
a.
Market price under reverse stock split	75*(5/2)
Market price under reverse stock split	$187.50
New no of shares oustanding	275000*(2/5)
New no of shares oustanding	110,000
b.
Market price after 6% stock dividend	75*(1/1.06)
Market price after 6% stock dividend	$70.75
New no of shares outstanding	275000*1.06
New no of shares outstanding	291,500
c.
Market price after 18% stock dividend	75*(1/1.18)
Market price after 18% stock dividend	$63.56
New no of shares outstanding	275000*1.18
New no of shares outstanding	324,500
d.
Market price under stock split	75*(2/9)
Market price under reverse stock split	$16.67
New no of shares oustanding	275000*(9/2)
New no of shares oustanding	1,237,500
The new no of shares oustanding are also calculated above