Question

XYZ Corporation had 158 million shares outstanding on January 1, 2012. On February 2,2012, it issued an additional 30 million shares to the market at the market priceof $55 per share. What was the effect of this share issue on the price per share

Answer 1

When XYZ Corporation issued an additional 30 million shares, it would decrease the price per share from the initial market price to approximately $46.24 per share.

Step-by-step explanation:

When XYZ Corporation issued an additional 30 million shares to the market, the effect on the price per share depends on the supply and demand dynamics of the market. However, we can analyze the impact using the basic principles of market capitalization.

Before the share issue, XYZ Corporation had 158 million shares outstanding. The market capitalization was calculated by multiplying the number of shares by the market price per share (158 million × $55 = $8.69 billion).

After the share issue, the number of shares increased to 188 million (158 million + 30 million). To maintain the same market capitalization, the market price per share would need to adjust accordingly ($8.69 billion / 188 million = $46.24 per share). Therefore, the share issue would decrease the price per share from the initial market price of $55 per share to approximately $46.24 per share.

Answer 2

There was no effect of this share issue on the price per share

Step-by-step explanation:

First, we need to determine the pre-issuance value

Numbers of outstanding shares = 158,000,000 shares

Total Value of equity = Numbers of outstanding shares x Market value per share = 158,000,000 shares x $55 per share = $8,690,000,000

Now calculate the issuance values

Numbers of shares issued = 30,000,000 shares

Vaue of issued equity = NUmbers of shares issued x Mrket value per share = 30,000,000 x $55 per share = $1,650,000,000

Now determien the post issuance value

Numbers of outstanding shares = 158,000,000 shares + 30,000,000 shares = 188,000,000 shares

Total Value of equity = $8,690,000,000 + $1,650,000,000 = $10,340,000,000

Now calcuate the Value per share

Value per share = Post Issuance Total value of equity / Post issuance total numbers of shares = $10,340,000,000 / 188,000,000 shares = $55 per share

There is no effect of share issue on the price of the share.