Your firm is planning a 2 for 1 stock split. The market price for the stock...
Your firm is planning a 2 for 1 stock split. The market price for the stock has been $84. The table below presents the equity portion of your firm's balance sheet before the split. Common stock
Par value (1 million shares outstanding; $4 par value) $ 4,000,000
Paid-in capital 16,000,000
Retained earnings 30,000,000
Total equity $50,000,000
a.) After the stock split, the number of shares outstanding, their par value and the total common stock account will stand at?
b.) Immediately after the stock split, the stock price will be approximately
c.) Immediately after the stock split, an investor who owned 100 share before the split will own
Homework Answers
a]
With a stock split, each share will be split into two. Therefore, the par value of each share will be halved, and the number of shares outstanding will double. The 1 million shares outstanding of $4 par value each will be split into 2 million shares of $2 par value each.
The par value of common stock will remain unchanged at $4,000,000.
The total common stock will remain unchanged at $50,000,000.
b]
Since it is a 2 for 1 stock split, the stock price after split will be approximately half.
c]
Since it is a 2 for 1 stock split, an investor who owned 100 shares before split will own 200 shares after split.
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available for common stock is included in retained earnings.
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Common stock—$8 par value, 60,000 shares
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Paid-in capital in excess of par value, common stock
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Retained earnings
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Total stockholders’ equity
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584,000
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