Ryan's Auto Parts has 200,000 shares of stock outstanding with a par value of $1 per share and a market value of $10 a share. The company has retained earnings of $86,000 and paid in surplus of
$285,000. The company just announced a 2-for-5 reverse stock split. How many shares of stock
Will be outstanding after the split?

Question

Quizplus · Accepted Answer

A 2-for-5 reverse stock split means that for every 5 shares of stock currently outstanding, shareholders will receive 2 new shares. The total number of shares outstanding will be reduced, while the value per share will increase.

In this case, the number of shares outstanding will be reduced by (2/5) x 200,000 = 80,000 shares. Therefore, after the split, there will be 200,000 - 80,000 = 120,000 shares of stock outstanding.

Therefore, the answer is B) 80,000 shares.

Ryan's Auto Parts Has 200,000 Shares of Stock Outstanding with a Par