Question: Singh Inc., a public company, has been experiencing financial difficulty in the past few years. As a result, the common shares have been trading at

Singh Inc., a public company, has been experiencing financial difficulty in the past few years. As a result, the common shares have been trading at a per share price of just over $1. If the stock trades at below $1 in the future, the stock exchange would delist Singh. To avoid delisting, the Singh board of directors declares a reverse stock split of 1 for 10 shares.
Instructions
(a) Following the reverse stock split, at what market price are the common shares likely to be trading?
(b) From the perspective of a current shareholder, will the board of directors' decision be well received?
(c) Assume that Singh Inc. also has issued and outstanding $4 preferred shares that are convertible into common shares. The conversion rate is 1 preferred share for 5 common shares. Will the reverse stock split affect the $4 per share per year dividend rate? Will the conversion ratio automatically change when the reverse stock split is executed? If so, what would be the new ratio?

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