Stockton Mineral Operation, Incorporated (SMO), currently has 485,000 shares of stock outstanding that sell for $40 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 15 percent stock dividend? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)c. SMO has a 54.5 percent stock dividend? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)d. SMO has a 2-for-7 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.)
Question
Stockton Mineral Operation, Incorporated (SMO), currently has 485,000 shares of stock outstanding that sell for $40 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 15 percent stock dividend? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)c. SMO has a 54.5 percent stock dividend? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)d. SMO has a 2-for-7 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.)
Solution
a. In a four-for-three stock split, each share is divided into 4/3 shares. Therefore, the new share price will be the old share price multiplied by 3/4.
30.00
b. A 15% stock dividend means that each shareholder will receive an additional 15% of their current shares. This increases the number of shares by 15%, so the new share price will be the old share price divided by 1.15.
34.78
c. A 54.5% stock dividend means that each shareholder will receive an additional 54.5% of their current shares. This increases the number of shares by 54.5%, so the new share price will be the old share price divided by 1.545.
25.89
d. In a 2-for-7 reverse stock split, every 7 shares are combined into 2 shares. Therefore, the new share price will be the old share price multiplied by 7/2.
140.00
e. The new number of shares outstanding:
a. In a four-for-three stock split, the number of shares increases by a factor of 4/3.
485,000 * (4/3) = 646,667 shares
b. A 15% stock dividend increases the number of shares by 15%.
485,000 * 1.15 = 557,750 shares
c. A 54.5% stock dividend increases the number of shares by 54.5%.
485,000 * 1.545 = 749,325 shares
d. In a 2-for-7 reverse stock split, the number of shares decreases by a factor of 2/7.
485,000 * (2/7) = 138,571 shares
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