Edie's Health and Beauty Supply has 125,000 shares of stock outstanding with a book value of $1.75 per share and a market value of $5 per share. The company has retained earnings of $76,500. The company just announced a 1-for-5 reverse stock split. How many shares of stock will be outstanding after the split?

Question

Quizplus · Accepted Answer

In a 1-for-5 reverse stock split, for every 5 shares that an investor holds, they are combined into 1 share. Therefore, to find the new number of shares outstanding, you divide the original number of shares (125,000) by 5. This results in 25,000 shares outstanding after the split.

Edie's Health and Beauty Supply Has 125,000 Shares of Stock