Blog: Fin630 GDB No. 1 Solution

Fin630 GDB No. 1 Announcement Semester "Spring 2011"

"Investment Analysis & Portfolio Management (Fin 630)"

This is to inform that Graded Discussion Board (GDB) will be opened according to the following schedule:

Schedule

Opening Date and Time
April 11 , 2011 At 12:01 A.M. (Mid-Night)

Closing Date and Time
April 14 , 2011 At 11:59 P.M. (Mid-Night)

Topic/Area for Discussion

"Types of Dividends"

Note: The discussion question will be from the area/topic mentioned above. So start learning about the topic now.

Question:

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:

4-for-1 Stock split
1-for-2 Reverse stock split

Required:

A.Calculate the par value per share for option 1 B.Calculate the par value per share for option 2 C.Which option the company should select in order to meet its objective and why?

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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.

Past Solved GDBs

Answer:

A. Par value for 1 = Rs-50

B. Par value for 2 = Rs-400

Company should select = A


Reason of selection = Write yourself due to avoid the copy case…


Working:-

Stock split Pre-Split Post-Split

A. 4-for-1 Stock split

4-for-1

# of Shares
6000 24000

Share Price
200/-Rs 50/-Rs

Market Capitalization
12,00,000 12,00,000

B. 1-for-2 Reverse stock split

Reverse stock split Pre-Split Post-Split

1-for-2

# of Shares
6000 3000

Share Price
200/-Rs 400/-Rs

Market Capitalization
12,00,000 12,00,000