Question 1

City Center Pharmacy has 24,500 shares of stock outstanding with a par value of $1 per share and a market value of $18.90 a share. The company just announced a reverse stock split of three-for-five. What will be the market value per share after the reverse stock split?

Accepted Answer

In a reverse stock split of three-for-five, the number of shares decreases, but the total market value remains the same. The new market value per share is calculated by multiplying the current market value per share by the ratio of the reverse split (5/3). Thus, $18.90 * (5/3) = $31.50.

Question 2

East Coast Marina has 65,000 shares of stock outstanding. The current market value of the firm is $2.87 million. The company has capital in excess of par value of $1.09 million on its balance sheet. The company is planning a stock split of five-for-four. What will be the market price per share after the split?

Accepted Answer

The market value of the firm is $2.87 million, and there are 65,000 shares outstanding. The current market price per share is $2.87 million / 65,000 = $44.15. After a five-for-four stock split, the number of shares will increase to (65,000 * 5/4) = 81,250 shares. The total market value of the firm remains the same at $2.87 million, so the new market price per share is $2.87 million / 81,250 = $35.32.

Question 3

The market value balance sheet for MZ Toys reflects cash of $32,000, fixed assets of $687,000, debt of $285,000, and equity of $479,000. The firm declared a stock dividend of 15 percent and tomorrow is the ex-dividend date (the chronology for a stock dividend is similar to that for a cash dividend). There are 12,000 shares outstanding. What is the ex-dividend stock price?

Accepted Answer

The answer of The market value balance sheet for MZ...

Question 4

Purvis Lawn Products has 5,400 shares of stock outstanding at a market price of $6.37 a share. What will the market price per share be if the company does a reverse stock split of one-for-three?

Accepted Answer

The answer of Purvis Lawn Products has 5,400 shares of...

Question 5

Prezario's has 14,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $287,000. Currently, the retained earnings account balance is $197,000 and the capital in excess of par value account balance is $47,900. The company just announced a stock split of three-for-one. What is the common stock account balance after the stock split?

Accepted Answer

The answer of Prezario's has 14,500 shares of stock outstanding...

Question 6

The common stock of Gillen Entertainment is selling for $47 a share. The firm has a book value of $487,400 and a market value of $938,000. How many shares of stock will be outstanding if the firm does a stock split of three-for-two?

Accepted Answer

The answer of The common stock of Gillen Entertainment is...

Question 7

Cooper Brands has 36,000 shares of stock outstanding at a market price of $61.10 a share. The company just announced a stock split of five-for-thee. What will be the market price per share after the split?

Accepted Answer

The market price per share after the split can be calculated by dividing the total market value of the shares before the split by the new number of shares after the split. The stock split is five-for-three, meaning for every three shares, shareholders now have five shares. The new number of shares = (36,000 shares * 5) / 3 = 60,000 shares. The total market value before the split = 36,000 shares * $61.10 = $2,199,600. The new market price per share = $2,199,600 / 60,000 shares = $36.66.

Question 8

The common stock of High Energy is selling for $58 a share. Currently, the firm has a total market value of $1,314,900 and a book value of $647,600. How many shares of stock will be outstanding if the firm does a stock split of five-for-two?

Accepted Answer

The answer of The common stock of High Energy is...

Question 9

The Olive Vase has 48,000 shares of stock outstanding with a par value of $1 per share and a market value of $13 a share. The company just announced a reverse stock split of three-for-seven. Currently, you own 400 shares of this stock. What will be the total value of your shares after the reverse stock split?

Accepted Answer

The reverse stock split of 3-for-7 means that for every 7 shares that a shareholder currently holds, they will receive 3 shares in return. 
So, for 400 shares before the split, the new number of shares you will hold after the split will be: 
400/7 * 3 = 171.43 (rounded to the nearest whole number = 171). 
The par value of the shares is still $1 per share, so the total value of your shares after the split will be: 
171 * $13 = $2,223. 
Therefore, the correct answer is C, $5,200, which represents the total value of your 400 shares before the split ($400 * $13 = $5,200).

Question 10

The Peanut Shack has 3,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $178,200. The company just announced a stock split of seven-for-three. What will be the market price per share after the split?

Accepted Answer

Before the stock split, the total value of the company was 3,500 shares x $1 per share = $3,500. 
After the stock split, the number of shares will increase to (3,500 x 7) / 3 = 8,166.67, which we'll round down to 8,166 shares. 
The par value per share will decrease to $1 / (7/3) = $0.43 per share. 
Therefore, the new market price per share will be: 
$178,200 / 8,166 shares = $21.82 per share.

Question 11

The Green Florist has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $14.40 a share. The company just announced a reverse stock split of two-for-three. Currently, you own 300 shares of this stock. How many shares will you own after the reverse stock split?

Accepted Answer

Before the reverse stock split, there were 15,000/1 = 15,000 total shares.
After the reverse stock split, each shareholder would receive 2 shares for every 3 shares they originally owned.

So, after the split, the total number of shares would be: 
15,000 x 2/3 = 10,000

To find how many shares the owner now owns, we can use a proportion:

300/15,000 = x/10,000

Simplifying this, we get:

x = (300 x 10,000)/15,000 = 200

Therefore, the owner now owns 200 shares (choice B).

Question 12

The Peace River Corporation has 52,000 shares of stock outstanding at a market price of $41 a share. The company has just announced a stock split of five-for-three. How many shares of stock will be outstanding after the split?

Accepted Answer

A five-for-three stock split means that for every three shares of stock, the shareholder will receive five new shares. Therefore, the number of shares outstanding will increase by a factor of 5/3.

After the split, the new number of shares outstanding will be:
52,000 x (5/3) = 86,667 shares

Therefore, the correct answer is D) 86,667 shares.

Question 13

Western Mountain Water has 35,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $948,000. The balance sheet shows a capital in excess of par value account balance of $72,800 and retained earnings of $368,400. The company just announced a stock split of three-for-one. What will be the capital in excess of par value account balance after the split?

Accepted Answer

After the split, the number of outstanding shares will be 35,000 x 3 = 105,000. The new par value per share will be $1/3 = $0.33. The total par value of outstanding shares will remain the same at $35,000. The market value of the firm will be adjusted to reflect the split, so the new market value will be $948,000 / 3 = $316,000.

The capital in excess of par value account balance will remain the same, as it represents the amount received from selling shares above their par value. Therefore, the answer is C, $72,800.

Question 14

Mario's has 24,000 shares of stock outstanding with a par value of $1 per share and a market price of $11.40 a share. The balance sheet shows $68,600 in the capital in excess of par value account, and $34,910 in the retained earnings account. The company just announced a stock split of three-for-one. What will be the capital in excess of par account value after the split?

Accepted Answer

The capital in excess of par value account remains unchanged at $68,600 after a stock split. A stock split increases the number of shares and decreases the market price per share proportionally, but it does not affect the par value per share or the total amount recorded in the capital in excess of par value account.

Question 15

The Mining Co. has 25,000 shares of stock outstanding. The current market value of the firm is $789,000. The company has retained earnings of $407,000, capital in excess of par value of $229,000, and a common stock account value of $25,000. The company is planning a reverse stock split of two-for-three. What will be the par value per share after the split?

Accepted Answer

The par value per share after the reverse stock split can be calculated by dividing the original common stock account value by the new number of shares outstanding after the split. Before the split, there are 25,000 shares with a common stock account value of $25,000, so the original par value per share is $1.00 ($25,000 / 25,000 shares). After a two-for-three reverse stock split, the number of shares will be reduced to two-thirds of the original amount, resulting in 16,667 shares (25,000 * 2/3). The new par value per share is then $1.50 ($25,000 / 16,667 shares).

Question 16

Glendale Paving currently has 45,000 shares of stock outstanding that sell for $38 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 22 percent?

Accepted Answer

The answer of Glendale Paving currently has 45,000 shares of...

Question 17

Jean's Warehouse has 22,000 shares of stock outstanding with a current market value of $971,520. The company has retained earnings of $218,740 and paid in surplus of $384,200. The company is planning a stock split of four-for-three. What will be the retained earnings account value after the split?

Accepted Answer

The value of the retained earnings account does not change due to a stock split. The stock split will increase the number of shares and decrease the price per share accordingly, but it does not affect the retained earnings.

Question 18

The Turtle Cave currently has 15,000 shares of stock outstanding that sell for $31 per share. Assume no market imperfections or tax effects exist. What will be the new share price if the firm declares a stock dividend of 10 percent?

Accepted Answer

The answer of The Turtle Cave currently has 15,000 shares...

Question 19

The owners' equity accounts for Buel Industries include common stock of $24,000 with a $1 par value, capital in excess of par value of $287,000, and retained earnings of $408,500. How many shares will be outstanding and what will be the par value per share if the firm declares a reverse stock split of one-for-four?

Accepted Answer

A one-for-four reverse stock split will reduce the number of outstanding shares while increasing the par value per share. To find the new number of outstanding shares, we divide the current number of outstanding shares (24,000) by 4, resulting in 6,000 shares. The new par value per share will be the current par value ($1) multiplied by 4, resulting in $4. Therefore, the answer is (B) 6,000; $4.00.

Quiz 17: Dividends and Payout Policy