Simmons Mineral Operations, Inc., (SMO) currently has 460,000 shares of stock ou

Question

Simmons Mineral Operations, Inc., (SMO) currently has 460,000 shares of stock outstanding that sell for $50 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:

a. SMO has a four-for-three stock split? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

New share price $

b. SMO has a 20 percent stock dividend? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

New share price $

c. SMO has a 49.5 percent stock dividend? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

New share price $

d. SMO has a three-for-seven reverse stock split? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

New share price $

e. Determine the new number of shares outstanding in parts (a) through (d). (Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.)

a. New shares outstanding

b. New shares outstanding

c. New shares outstanding

d. New shares outstanding

Explanation / Answer

Solution a)

when stock split 4:3 means for every 3 shares held 4 shares will be issued :

Currently 460000 hence market cap = 460000*50 = 23000000

hence in a stock split there is only change in the shares and no change in the market cap hence the price of the share would be : total shares would be = 460000*4/3 = total shares = 613333

hence the sprice would be = 23000000/613333 = $37.50

solution b:

Issue stock dividend 20 % whenever the dividend is issued then to that extent the stock price will come down as the markets are perfect hence the stock price would be 50 * (1-.2 ) = $40

solution c:

Similarly when the stock dividend is 49.5% then the stock price would be = $25.5

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