FIN 630 GDB Solution

FIN 630 GDB Solution

Semester Spring,2011

SNT Inc. is a Public Limited Company. In the following year, one of the objectives of Company is to make its shares more attractive for the investors by increasing the affordability of its shares for the lower income investors. Currently Company’s share is selling for Rs. 200 per share (which is considered an expensive share by the investors) and company is having 6, 000 outstanding shares. Now Company has two options:

1.  4-for-1 Stock split

2. 1-for-2 Reverse stock split

Required:

Calculate the par value per share for option 1

A.

Solution:

New trading price = 200/4 = 50

B.

Calculate the par value per share for option 2

Solution:

New number of shares = 6000/2 = 3000

New trading price = 200 * 2 = 400

C. Which option the company should select in order to meet its objective and why?

Solution:

I will select Option 1 because low price attract more Investors.

Your answer should be in such format:

Par value per share for option 1= 50

Par value per share for option 2= 400

Company should select= Option 1

Reason of selection= low Price Attract More investors.