Wilson Pharmaceuticals’ stock has done very well in the market during the last t

Question

Wilson Pharmaceuticals’ stock has done very well in the market during the last three years. It has risen from $65 to $90 per share. The firm’s current statement of stockholders’ equity is as follows:

How many shares would be outstanding after a two-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as "1.23").)

What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)

How many shares would be outstanding after a three-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as "1.23").)

What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)

Assume that Wilson earned $10 million. What would its earnings per share be before and after the two-for-one stock split? After the three-for-one stock split? (Do not round intermediate calculations and round your answers to 2 decimal places.)

What would be the price per share after the two-for-one stock split? After the three-for-one stock split? (Assume that the price-earnings ratio of 18.00 stays the same.) (Do not round intermediate calculations and round your answers to 2 decimal places.)

Wilson Pharmaceuticals’ stock has done very well in the market during the last three years. It has risen from $65 to $90 per share. The firm’s current statement of stockholders’ equity is as follows:

Explanation / Answer

a-1.

Number of shares outstanding presently = 2 million

Two-for-one stock split will result in issue of two shares in lieu each share outstanding. Hence, Number of shares outstanding shall be doubled.

Number of shares outstanding after a two-for-one stock split = 2 million *2 = 4 million

a-2.

In case of stock split, total value of shares shall remain same at $20,000,000 ($20 million)

Par value after stock split = $20 million / 4 million = $5 per share

b-1

In case for three-for-one stock split, the number of shares shall increase by three times as three shares were issued for one share.

Number of shares outstanding after a three-for-one stock split = 2 million*3 = 6 million

b-2.

Par value after stock split = $20 million/6 million = $3.33 per share

c.

Earnings per share = Net earnings/Number of shares outstanding

EPS before = $10 million/2 million = $5 per share

EPS after 2-for-1 split = $10 million/4 million = $2.50 per share

EPS for 3-for-1 split = $10 million/6 million = $1.67 per share

d.

Price earnings ratio = Price per share/Earnings per share

Price per share = Earnings per share*Price earnings ratio

Price after 2-for-1 split = $2.50*18 = $45 per share

Price after 3-for-1 split = $1.67*18 = $30 per share

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