Pat’s Video Games has been struggling recently as it has been rumored that the owners are secret Dodgers fans. As a result, its stock price is now only $4 per share. It is going to declare a one-for-two reverse stock split to increase the stock value. a. If an investor owns 90 shares, how many shares will he own after the reverse stock split? b. What is the anticipated price of the stock after the reverse stock split? c. Because it became public knowledge that the owners of Pat’s Video Games were Dodgers fans (and used company proceeds to purchase Dodger paraphernalia, the stock price continued to drop even after the stock split. If the stock price only goes up to 75 percent of the value computed in part b. What will the stock’s price be? d. How has the total value of an investor’s holdings changed from before the reverse stock split to after the reverse stock split (based on the stock value computed in part c)? e. What important lesson did the investor learn?
Pat’s Video Games has been struggling recently as it has been rumored that the owners are secret Dodgers fans.
As a result, its stock price is now only $4 per share. It is going to declare a one-for-two reverse stock split to
increase the stock value.
a. If an investor owns 90 shares, how many shares will he own after the reverse stock split?
b. What is the anticipated price of the stock after the reverse stock split?
c. Because it became public knowledge that the owners of Pat’s Video Games were Dodgers fans (and used company proceeds to purchase Dodger paraphernalia, the stock price continued to drop even after the stock split. If the stock price only goes up to 75 percent of the value computed in part b. What will the stock’s price be?
d. How has the total value of an investor’s holdings changed from before the reverse stock split to
after the reverse stock split (based on the stock value computed in part c)?
e. What important lesson did the investor learn?
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