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  • Dryden, Corp.

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    Md. Habibullah
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    The document describes a stock split scenario for Dryden Corp. It asks (a) how many shares someone with 100 shares pre-split would have post-split given a 5:2 split ratio, (b) the value of a $100 share investment pre-split, and (c) the expected value post-split. It concludes that while the number of shares changes due to the split, the total investment value remains the same, and thus a firm's management may want a stock split to make shares more affordable without changing the company's total market valuation.

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    The document describes a stock split scenario for Dryden Corp. It asks (a) how many shares someone with 100 shares pre-split would have post-split given a 5:2 split ratio, (b) the value of a $100 share investment pre-split, and (c) the expected value post-split. It concludes that while the number of shares changes due to the split, the total investment value remains the same, and thus a firm's management may want a stock split to make shares more affordable without changing the company's total market valuation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    25 views1 page

    Dryden, Corp.

    Uploaded by

    Md. Habibullah
    The document describes a stock split scenario for Dryden Corp. It asks (a) how many shares someone with 100 shares pre-split would have post-split given a 5:2 split ratio, (b) the value of a $100 share investment pre-split, and (c) the expected value post-split. It concludes that while the number of shares changes due to the split, the total investment value remains the same, and thus a firm's management may want a stock split to make shares more affordable without changing the company's total market valuation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    Q # 4: Dryden, Corp.

    has 500,000 shares of common stock outstanding, a P/E ratio of 11, and BDT900,000
    earnings available for common stockholders. The board of directors has just voted a 5:2 stock split.
    a. If you had 100 shares of stock before the split, how many shares will you have after the split?
    b. What was the total value of your investment in Dryden stock before the split?
    c. What should be the total value of your investment in Dryden stock after the split?
    d. In view of your answers to (b) and (c) above, why would a firm's management want to have a stock split?

    Answer:

    a. Before split: Share= 100 , Ratio= 5:2,


    So New share will be = (100*5)/2= 250

    b. EPS= 900000/500000= 1.8, So PE ratio= 11


    Market price per share= (1.8*11)= 19.8

    Value of investment = 19.8*100= $1980

    c. Value after investment will be same $1980, because split does not change value of investment.

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