Question

Bermuda Triangle Corporation (BTC) currently has 550,000 shares of stock outstanding that sell for $88 per share. Assume no market imperfections or tax effects exist.

Determine the share price and new number of shares outstanding if:a. BTC has a five-for-three stock split.b. BTC has a 15 percent stock dividend.c. BTC has a 42.0 percent stock dividend.d. BTC has a four-for-seven reverse stock split.

Answer 1

Please find the detailed answer as follows:

Step-by-step explanation:

Step 1. Given information.

• Consider the value of the price share
• Number of shares prices

Step 2. Formulas needed to solve the exercise.

• Share price = Price * Stock split or percent stock
• Number of share prices = shares of stock * Stock split

Step 3. Calculation. Step 4. Solution will be found as follows.

Stock prices are based on the value of the firm divided by the number of shares outstanding. If the number of shares outstanding increase, the stock price will fall.

a. BTC has a five-for-three stock split.

Share price = $88 * 3/5 = $52.8

No. of shares = 550,000 * 5/3 = 916,667

b. BTC has a 15 percent stock dividend.

Share price = $88/1.15 = $76.52

No. of shares = 550,000*1.15 = 632,500

c. BTC has a 42.0 percent stock dividend.

Share price = $88/1.42 = $61.97

No. of shares = 550,000*1.42 = 781,000

d. BTC has a four-for-seven reverse stock split.

Share price = $88 * 7/4 = $154

No. of shares = 550,000 * 4/7 = 314,286