Edie's Health and Beauty Supply has 125,000 shares outstanding with a par value of £1 per share and a market value of £5 a share.The company has retained earnings of £76,500 and additional
Paid in capital of £340,000.The company just announced a 1-for-5 reverse stock split.What will the
Par value per share be after the split?

Question

Quizplus · Accepted Answer

In a 1-for-5 reverse stock split, every 5 shares are combined into 1 share. This increases the par value per share by a factor of 5. The original par value is £1, so after the split, the par value will be £5.

Edie's Health and Beauty Supply Has 125,000 Shares Outstanding with a Par