Nabeeh Dawood owns 400 shares of Apple Inc., which he purchased in September 2009 for US$18 per share. Apple is regarded as a high tech computer stock and has introduced new innovations in the electronics field over the past 3 years. As of May 2012, the price of the stock was at US$121 per share. Nabeeh read in The Wall Street Journal that Apple's board of directors believed that the stock may be priced too high and would trade more actively in a lower price range. The board announced a 4­for­1 stock split.
Answer the following questions about the impact of the stock split on his holdings and taxes. Nabeeh is in the 28 percent income tax bracket.
a. How many shares of Apple will Nabeeh own after the stock split?
b. Immediately after the split, what do you expect the value of Apple to be?
c. Compare the total value of Nabeeh's stock holdings before and after the split. What do you find?
d. Does Nabeeh experience a gain or loss on the stock as a result of the 4­for­1 split?
e. What is Nabeeh's tax liability from the event?