Part 1. Stock splits and stock dividends. Red Rocks Corporation (RRC) currently

Question

Part 1. Stock splits and stock dividends.
Red Rocks Corporation (RRC) currently has 250,000 shares of stock outstanding that sell for $75 per share. Assume that signaling, market imperfections, and taxes are not factors, what should the approximate share price be after each of the following? Also, assume that each of the events in a, b, and c are separate and independent of each other.
a. RRC has a 5-for-3 stock split.  Check figure: New shares outstanding = 416,667 and new share price = $45.00.
b. RRC has 15% stock dividend.
c. RRC has a 4-for-7 reverse stock split.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Stock Price after Stock Split = Current Stock*Split Ratio = 75*3/5 = $45

Part B:

Stock Price after Stock Dividend = Current Stock Price/(1+Stock Dividend %) = 75/(1+15%) = $65.22

Part C:

Stock Price after Reverse Stock Split = Current Stock Price*Reverse Stock Split Ratio = 75*7/4 = $131.25

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects