Edie's Health and Beauty Supply has 125,000 shares of stock 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 capital in excess of par of $340,000. 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, every 5 shares are combined into 1 share. Therefore, the total number of outstanding shares will be reduced by a factor of 5. 125,000 shares divided by 5 is 25,000 shares. So after the split, there will be 25,000 shares outstanding.

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