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.
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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.
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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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