Question

Worst Buy Company has had a lot of complaints from customers of late, and its stock price is now only $4 per share. It is going to employ a one-for-six reverse stock split to increase the stock value. Assume Dean Smith owns 156 shares.

a. How many shares will he own after the reverse stock split? (Do not round intermediate calculations and round your answer to the nearest whole number.) Number of shares b. What is the anticipated price of the stock after the reverse stock split? (Do not round intermediate calculations and round your answer to 2 decimal places.) Anticipated stock price $c. Because investors often have a negative reaction to a revere stock split, assume the stock only goes up to 80 percent of the value computed in part b. What will the stock’s price be? (Do not round intermediate calculations and round your answer to 2 decimal places.) Stock price $d. How has the total value of Dean Smith’s holdings changed from before the reverse stock split to after the reverse stock split (based on the stock value computed in part c)? To get the total value before and after the split, multiply the shares held times the stock price.(Input the amount as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places.) Dean Smith’s holdings $

Answer 1

A. Post-split shares 26 shares

B.Post-split stock price$24

C.Adjusted stock price$19.2

D.Pre split value $624.00

Post-split value $499.2

Change in value=-$124.8

Step-by-step explanation:

Worst Buy Company

a. Calculation for Post-split shares

Post split share= Pre-split shares × Split ratio=156 × 1/6=26 shares

b. Calculation for Post-split stock price

Post split stock price= Pre-split price × (1 / Split ratio)

=$4 × 6/1=$24.00

c. Calculation for Adjusted stock price

Adjusted stock price = Adjustment ratio × Post-split price=.80 × $24.00=$19.2

d. Calculation for Pre-split value

Pre split value = Pre-split shares × Pre-split price=

156 × $4=$624.00

Post-split value = Post-split shares × Post-split price=26 × $19.2=$499.2

Change in value = Post-split value – Pre-split value=$624.00 – $499.2

Change in value=-$124.8

The value of Dean Smith's holdings decreased by $124.8