Purchase Solution

# The Effect of Stock Splits and Dividends on Stock Prices

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A corporation currently has 250,000 shares of stock outstanding that sell for \$75 per share. Assuming no market imperfections or tax effects exist, what will the price per share be after:

They have a five for three stock split?

They have a 15% stock dividend?

They have a 42.5% stock dividend?

They have a four for seven reverse stock split?

Also what will the new number of outstanding shares be for each question.

##### Solution Summary

Assuming a perfect market, this solution illustrates the effect of different stock splits and dividends on the price of a company's stock.

##### Solution Preview

First, the total market value of the firm is 250,000*\$75, or \$18,750,000. This should not change for either stock splits or stock dividends.

If they have a 5-for-3 split, there will be 250,000*(5/3) shares outstanding or 416,667 shares ...

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