Red Rocks Corporation (RRC) currently has 250,000 shares of stock outstanding th

Question

Red Rocks Corporation (RRC) currently has 250,000 shares of stock outstanding that sell for $75 per share. First, determine the number of shares outstanding and second, what the approximate share price should be after each of the following. Assume that signaling, market imperfections, and taxes are not factors. Also, assume that each of the events in a, b, and c are separate and independent of each other.

1-RRC has a 5-for-3 stock split.

2-RRC has 15% stock dividend

3-RRC has a 4-for-7 reverse stock split

Explanation / Answer

Number of shares 250000 Market price 75 Total market cap 18750000 1) 5 for 3 stock split        Number of shares ( 250000/3*5) 416666.6667        Market price (75/3*5) 45 2) 15% stock dividend        Number of shares ( 250000*115%) 287500         Market price ( 18750000/287500) 65.22 3) 4 for 7 reverse stock split        Market price (75/4*7) 131.25

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