Q. 2(A). ABC Company has the following shareholder's equity account: Common stock ($8 par value) Additional paid-in capital Retained Earnings Shareholders' equity $2,000,000 1,600,000 8,400,000 $12,000,000 (10 Marks) The current market price is $60 per share. 1. What will happen to this account and to the no. of shares outstanding with a: a) 20% stock dividend b) 2:1 stock split 2. In the absence of signalling effect what price should the stock sell after the stock dividend? 3. What will you expect the price to be if there were a signalling effect? Q. 2(B). Zenith Electronics repurchased 1 million of 14 million shares outstanding at $898 a share. Immediately before the before the announcement, market price was $91. After the repurchase, the price went to $105. (10 Marks) a. What would explain this rise if there was no other information concerning the company or stock? b. Was the offer price by the company the correct repurchase price?
Q. 2(A). ABC Company has the following shareholder's equity account: Common stock ($8 par value) Additional paid-in capital Retained Earnings Shareholders' equity $2,000,000 1,600,000 8,400,000 $12,000,000 (10 Marks) The current market price is $60 per share. 1. What will happen to this account and to the no. of shares outstanding with a: a) 20% stock dividend b) 2:1 stock split 2. In the absence of signalling effect what price should the stock sell after the stock dividend? 3. What will you expect the price to be if there were a signalling effect? Q. 2(B). Zenith Electronics repurchased 1 million of 14 million shares outstanding at $898 a share. Immediately before the before the announcement, market price was $91. After the repurchase, the price went to $105. (10 Marks) a. What would explain this rise if there was no other information concerning the company or stock? b. Was the offer price by the company the correct repurchase price?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Q. 2(A). ABC Company has the following shareholder's equity account:
Common stock ($8 par value)
Additional paid-in capital
Retained Earnings
Shareholders' equity
$2,000,000
1,600,000
8,400,000
$12,000,000
(10 Marks)
The current market price is $60 per share.
1. What will happen to this account and to the no. of shares outstanding with a:
a) 20% stock dividend
b) 2:1 stock split
2. In the absence of signalling effect what price should the stock sell after the stock
dividend?
3. What will you expect the price to be if there were a signalling effect?
Q. 2(B). Zenith Electronics repurchased 1 million of 14 million shares outstanding at $898 a
share. Immediately before the before the announcement, market price was $91. After the
repurchase, the price went to $105.
(10 Marks)
a. What would explain this rise if there was no other information concerning the company
or stock?
b. Was the offer price by the company the correct repurchase price?
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