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    EPS after the split and other concepts

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    Question 4. Capra's stock trades at $60 a share. The company is contemplating a 4-for-1 stock split. Currently, the company has EPS of $4.00, DPS of $1.00, and 10 million shares of stock outstanding. Assuming that the stock split will have no effect on the total market value of its equity, what will be the company's stock price following the stock split?

    a. How many shares of stock will be outstanding after the split?

    b. Calculate EPS after the split.

    c. Calculate DPS after the split.

    d. Calculate price per share after the split

    e. Calculate price per share after the split if the PE increases by 2

    f. Why do companies split their stock?

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    Solution Preview

    Why Stock Splits

    When a company believes that investors are shying away from purchasing or holding its stock because the market price is too high or too low, the board of directors may approve a stock split. A stock split is similar to a stock dividend in that new shares of stock are issued to current stockholders.

    Stock splits are expressed as ratios such as "2 for 1" or "3 for 2." In a 3 for 2 split, for example, for every 2 ...

    Solution Summary

    This provides the steps to calculate the EPS after the split and other related concepts

    $2.19