a.
To calculate: The number of shares that would be outstanding after a stock split of two-for-one, and its par value.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
b.
To calculate: The number of shares that would be outstanding after a stock split of three-for-one, and its par value.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
c.
To calculate: The EPS of Wilson Pharmaceutical before stock split and after stock splits of 2-for-1 and 3-for-1, if the total earnings are $11 million.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
Earnings per share (EPS):
It is the profit earned by shareholders on each share. A higher EPS indicates a higher value of the company because investors are ready to pay a higher price for one share of the company.
d.
To calculate: The price per share of Wilson Pharmaceutical after a 2-for-1 split and a 3-for-1 split, assuming the P/E ratio to be 36.36.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
P/E ratio:
It is computed by dividing the current share price of a company by its EPS. It helps in valuing the present as well as future profitability of a company.
e.
To explain: Whether there will be a change in the P/E ratio of Wilson Pharmaceuticals because of the stock split.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
P/E ratio:
It is computed by dividing the current share price of a company by its EPS. It helps in valuing the present as well as future profitability of a company.
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Chapter 18 Solutions
EBK FOUNDATIONS OF FINANCIAL MANAGEMENT
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