Explore BrainMass

Explore BrainMass

    Value of an Investment After a Stock Split

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Company ABC currently has 100,000 shares of common stock outstanding and a price-earnings ratio of seven. Net income for the recently ended year is $375,000. Company ABC board of directors declared a 15-for-2 stock split. Company XYZ owned 100 shares of Company ABC before the split. What is the approximate value of Company XYZ investment in Company ABC immediately after the split?

    a) $26
    b) $350
    c) $2,625
    d) $5,250

    © BrainMass Inc. brainmass.com March 4, 2021, 10:43 pm ad1c9bdddf
    https://brainmass.com/business/stock-dividends-and-stock-splits/value-investment-after-stock-split-356205

    Solution Preview

    A stock split has a non-dilutive effect for existing shareholders; that is, they own the same proportion of shares after the split as they owned prior to it. In this case, Company ABC split its 100,000 ...

    Solution Summary

    Given the number of shares held as an investment, the company's net income, the price-earnings ratio, and the stock split, this solution illustrates how to compute the value of the investment after the split.

    $2.49

    ADVERTISEMENT