Red Rocks Corporation (RRC) currently has 129,000 shares of stock outstanding th

Question

Red Rocks Corporation (RRC) currently has 129,000 shares of stock outstanding that sell for $72 per share. Assume no market imperfections or tax effects exist.

Requirement 1:
(a) What will the share price be after RRC has a five-for-one stock split?



(b) What will the share price be after RRC has a 12 percent stock dividend?



(c) What will the share price be after RRC has a 43 percent stock dividend?



(d) What will the share price be after RRC has a six-for-seven reverse stock split?



Requirement 2:
(e) Determine the new number of shares outstanding in requirement 1(a).



(f) Determine the new number of shares outstanding in requirement 1(b).



(g) Determine the new number of shares outstanding in requirement 1(c).



(h) Determine the new number of shares outstanding in requirement 1(d).

Explanation / Answer

129,000 shares of stock outstanding that sell for $72 per share (a) What will the share price be after RRC has a five-for-one stock split? Post Stock split, share price will fall to $72/5 = $14.40 per share (b) What will the share price be after RRC has a 12 percent stock dividend? Post Stock div, no of shares will increase to 1.12*129,000 = 144,480 Earlier Mkt Cap was 129000*$72 = $9,288,000 So New share price will be $9,288,000/144,480 = $64.29 (c) What will the share price be after RRC has a 43 percent stock dividend? Post Stock div, no of shares will increase to 1.43*129,000 = 184,470 Earlier Mkt Cap was 129000*$72 = $9,288,000 So New share price will be $9,288,000/ 184,470 = $50.35 (d) What will the share price be after RRC has a six-for-seven reverse stock split? Six-for-seven reverse stock split will reduce the total no of shares thus boosting share price. So new no of shares post reverse split = 129000*6/7 = 110,571 shares Earlier Mkt Cap was 129000*$72 = $9,288,000 So New share price = $9,288,000/110571 = $84 Requirement 2: (e) Determine the new number of shares outstanding in requirement 1(a). New no of shares post 5:1 split = 129000*5/1 = 645,000 (f) Determine the new number of shares outstanding in requirement 1(b). Post Stock div, no of shares will increase to 1.12*129,000 = 144,480 (g) Determine the new number of shares outstanding in requirement 1(c). Post Stock div, no of shares will increase to 1.43*129,000 = 184,470 (h) Determine the new number of shares outstanding in requirement 1(d). new no of shares post reverse split = 129000*6/7 = 110,571 shares

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