L2

Problem 18-17 Stock split and its effects [LO18-4]

Wilson Pharmaceuticals stock has done very well in the market during the last three years. It has risen from $25 to $50 per share. The firms current statement of stockholders equity is as follows:

Common stock (4 million shares issued at par value of $10 per share)	$	40,000,000
Paid-in capital in excess of par		12,000,000
Retained earnings		48,000,000
Net worth	$	100,000,000

a-1. How many shares would be outstanding after a two-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as "1.23").)

Number of shares

million

a-2. What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)

Par value

b-1. How many shares would be outstanding after a three-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as "1.23").)

Number of shares

million

b-2 What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)

Par value

c. Assume that Wilson earned $18 million. What would its earnings per share be before and after the two-for-one stock split? After the three-for-one stock split? (Do not round intermediate calculations and round your answers to 2 decimal places.)

EPS before
EPS after 2-for-1 split
EPS after 3-for-1 split

d. What would be the price per share after the two-for-one stock split? After the three-for-one stock split? (Assume that the price-earnings ratio of 11.11 stays the same.) (Do not round intermediate calculations and round your answers to 2 decimal places.)

Price after 2-for-1 split
Price after 3-for-1 split