A company has 100,000,000 shares outstanding. Most of the shares are held by ret

Question

A company has 100,000,000 shares outstanding. Most of the shares are held by retail shareholders in small holdings. Assume this shareholder base structure: (1) 1 million shareholders each own 20 shares of stock; (2) 1 million shareholders each own 30 shares of stock; (3) 1 million shareholders each own 50 shares. To reduce the number of shares outstanding, the company engages in a 1-for-8 reverse stock split. Anv shares unable to be converted into a whole share are cashed out. Answer these two questions: (1) At the end of the reverse stock split, what is the new number of shares outstanding? (2) What is the total number of pre-split (before the reverse stock split) shares that were cashed out? A. 20 million new shares outstanding, and 14 million shares cashed out B. 12 million new shares outstanding, and 11 million shares cashed out C· 11 million new shares outstanding, and 12 million shares cashed out D. 12 million new shares outstanding, and 13 million shares cashed out E. 11 million new shares outstanding, and 10 million shares cashed out

Explanation / Answer

C.11 million new shares outstanding and 12 million shares cashed out.

The following table explains, the same:

6*1.0 million

=>6.0 million

Number of shares to be issued number of shares to be cashed out 1 million share holders own 20 shares each: number of shares that should be given = (20 / 8) =>2.5 shares each, since fractional shares cannot be given , the shares to be cashed out will be [(2.5-2.0) * 8 shares]=>4 shares per share holder, shares to be issued will be 2 per share holder 2 * 1 million=>2 million 4 *1 million=>4 million 1 million share holders own 30 shares each: number of shares that should be given = (30 / 8) =>3.75 shares each, since fractional shares cannot be given , the shares to be cashed out will be [(3.75-3.0) * 8 shares]=>6shares per share holder, shares to be issued will be 3 per share holder 3*1.0 million=>3million 6 *1.0 million=>6 million 1 million share holders own 50 shares each: number of shares that should be given = (50 / 8) =>6.25 shares each, since fractional shares cannot be given , the shares to be cashed out will be [(6.25-6.) * 8 shares]=>2 shares per share holder, shares to be issued will be 6 per share holder

6*1.0 million

=>6.0 million

2*1.0 million=>2.0 million TOtal 11.0 million 12.0 million

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