Question

Taylor's stock has plummeted in value and is currently priced at $5 a share. The firm prefers the price exceed $10 a share and thus has decided to do a reverse stock split. However, when it does this, the firm wants the stock price increased to at least twice its preferred minimum as it is concerned the price will fall further. Which one of the following stock split ratios is most appropriate for this situation?
A. 1-for-3
B. 1-for-4
C. 2-for-7
D. 4-for-1
E. 7-for-2

Answer 1

Answer:

D

Explanation:

a reverse stock split is the opposite of a stock split. A reverse stock split reduces the number of shares outstanding.

It is usually done when it is perceived that the stock of a company is undervalued.

In a 4-for-1 split, for every four shares owned by a shareholder, it becomes one. So if a shareholder has 1000 shares at a price of $5, it becomes 1000/ 4 = 250 the shareholder owns. Prices becomes $5 x 4 = $20. this is at least twice its preferred minimum of $10.

A. 1-for-3

B. 1-for-4

C. 2-for-7

are examples of stock splits and not a reverse stock split.

In a  7-for-2, f a shareholder has 1000 shares at a price of $5, price becomes $5 x (7/2) = $17.50

This is not at least twice its preferred minimum of $10.