HQ Company is considering a 1-for-3 reverse stock split. HQ\'s stock is currentl

Question

HQ Company is considering a 1-for-3 reverse stock split. HQ's stock is currently selling for $3 per share. (a) What will the price of the stock be after the stock split? (b) HQ plans to pay a dividend equal to %0.25 per share after the split. The company would like to pay an equivalent dividend per share even if the split does not take place. What would the per-share dividend have to be if HQ doesn't split the stock?

I was given the answer:

(a) Price = 9.00

(b) Pre-split dividend = 0.0833

But I need to know how to get these numbers.

Explanation / Answer

a) Pre split price per share = $3 per share

Reverse stock plit = 1 for 3 (i.e. 3 shares will merge to form one stock)

Post split price per share = $3 * 3 = $9 per share (Answer)

b) There seems to be a mistake in question. %0.25 should be $0.25 per share

Post split dividend per share = $0.25 per share

Pre split equivalent dividend per share = $0.25/3 = $0.0833 per share (Answer)

Note: Even if it is 0.25% per share, the par value per share after split is $1, the dividend per share will be = $1 * 0.25% = $0.0025 per share

Pre split par value per share = $1/3 = $0.3333 per share

Dividend per share on pre split par value = $0.3333 x 0.25% = $0.00083 per share

Equivalent dividend = $0.00083 per share x 3 = $0.0025 per share

However, I think that the dividend is $0.25 per share and not 0.25% per share, so you should submit the earlier solution (The bold portion).

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.