Menomonie Publishing effect on number of shares: split, reverse split, stock dividend
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Menomonie Publishing stock currently sells for $40 per share. The company has 1,200,00 shares outstanding. What would be the effect on the number of shares outstanding and on the stock price of the following:
1. 15% Stock Dividend
2. 4-for-3 Stock Split
3. Reverse 3-for-1 Stock Split
Last year both Hudson Homes and Baldwin Construction earned $1 million in net income. Both companies have assets of $10 million. Hudson generated a return on equity of 11.1%, whereas Baldwin produced a return on equity of 20.0%. What can explain the differences in return on equity between the two companies.
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1. Menomonie Publishing has a total valuation of $48 million (1.2
million shares x $40/per share), so increases in the number of shares
should see a decrease in the stock price - while lowering the number
of outstanding shares should increase the per-share price:
A 15% stock dividend will increase the number of shares to 1,380,000
and lower the price to $34.78 = $48,000,000 / 1,380,000
Thus, if you increase the number of shares by 15%, you lower the stock
price by 1/1.15 or about 13%.
2. A 4-for-3 stock split is a 33.3% increase to 1,600,000 shares so
the stock price should be $48,000,000 / 1,600,000 shares = $30 per
share. A 33.3% increase in shares would reduce the stock price ...
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