Bob's Auto Group has 25,000 shares of stock outstanding at a market price of $4.50 a share. What will the market price per share be if the company does a 1-for-5 reverse stock split?

Question

Quizplus · Accepted Answer

A reverse stock split decreases the number of shares outstanding and increases the market price per share. In this case, a 1-for-5 reverse stock split means that for every 5 existing shares, the shareholder will receive 1 new share.

So, the number of outstanding shares will decrease from 25,000 to 5,000 (25,000/5), and each share will be worth 5 times the previous market price, which is $4.50.

Therefore, the new market price per share will be:

$4.50 x 5 = $22.50

Hence, the correct answer is C.

Bob's Auto Group Has 25,000 Shares of Stock Outstanding at a Market