Worst Buy Company has had a lot of complaints from customers of late, and its st

Question

Worst Buy Company has had a lot of complaints from customers of late, and its stock price is now only $3 per share. It is going to employ a one-for-six reverse stock split to increase the stock value. Assume Dean Smith owns 72 shares.

What is the anticipated price of the stock after the reverse stock split? (Do not round intermediate calculations and round your answer to 2 decimal places.)

Because investors often have a negative reaction to a revere stock split, assume the stock only goes up to 90 percent of the value computed in part b. What will the stock’s price be? (Do not round intermediate calculations and round your answer to 2 decimal places.)

How has the total value of Dean Smith’s holdings changed from before the reverse stock split to after the reverse stock split (based on the stock value computed in part c)? To get the total value before and after the split, multiply the shares held times the stock price.(Input the amount as a positive value. Do not round intermediate calculations and round your answer to 2 decimal places.)

Worst Buy Company has had a lot of complaints from customers of late, and its stock price is now only $3 per share. It is going to employ a one-for-six reverse stock split to increase the stock value. Assume Dean Smith owns 72 shares.

Explanation / Answer

a. No. of shares after reverse stock split of one-for-six = 72 / 6 = 12 shares

b. Anticipated stock price = $3 x 6 = $18

c. Stock price = Anticipated stock price x 90% = 18 x 90% = 16.20

d. Dean Smith's holdings before stock split = 72 shares x $3 per share = $216

Dean Smith's holding after stock split = 12 shares x $16.20 = $194.40

Hence, the total value of Dean Smith's holdings has decreased by $21.60

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