R Co. has outstanding 100 million shares, $1 par common shares, selling for $8 per share. After a 1 for 4 reverse stock split:

Question

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A 1 for 4 reverse stock split would reduce the number of outstanding shares by a factor of 4, resulting in R Co. having 25 million shares outstanding. The par value per share may change, but in this case, it is mentioned that the new par value would be $4 per share. Therefore, choice A is the best answer. Choice B is incorrect because the market price per share is likely to increase after a reverse split, not decrease to $2. Choice C is also incorrect because fractional shares would not be issued in a reverse stock split. Choice D is irrelevant to this scenario as retained earnings are not affected by a reverse split.

R Co Has Outstanding 100 Million Shares, $1 Par Common Shares