LTE stock sells for $28.35 per share and there are 390,000 shares outstanding. The company plans a 4-for-3 reverse stock split. Assuming no market imperfections or tax effects, what will the stock price be after the split?
Question
LTE stock sells for $28.35 per share and there are 390,000 shares outstanding. The company plans a 4-for-3 reverse stock split. Assuming no market imperfections or tax effects, what will the stock price be after the split?
Solution
A reverse stock split reduces the number of shares and increases the share price proportionately. In this case, the company is planning a 4-for-3 reverse stock split.
Here's how you calculate the new stock price:
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First, determine the total market value of the company. You do this by multiplying the current stock price by the number of shares outstanding. In this case, 11,056,500.
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Next, calculate the new number of shares after the reverse split. For every 4 shares, there will now be 3. So you divide the current number of shares by 4 and then multiply by 3. In this case, (390,000 / 4) * 3 = 292,500 shares.
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Finally, calculate the new stock price by dividing the total market value by the new number of shares. In this case, 37.80.
So, the new stock price after the 4-for-3 reverse stock split should be approximately $37.80.
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