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Coca-Cola just announced a 5 for 2 stock split
Coca-Cola just announced a 5 for 2 stock split. Coca-Cola currently has 10 million shares outstanding and the stock is trading at $42 per share. Zynga just announced a 1 for 3 reverse stock split. Zynga currently has 2 million shares outstanding and trades at $4.25 per share. A. What effect will the stock split have on Coca-Colas stock price and the number of shares outstanding? B. What effect will the reverse stock split have on Zyngas stock price and the number of shares outstanding?
Expert Solution
A. For every two shares you hold, it becomes 5 shares in 5 for 2 stock split but the overall value remains same.
Stock price becomes=42*2/5=16.8
The number shares outstanding=10,000,000*5/2=25,000,000
B. In reverse stock split, 1-for-3 split, you end up with one share for every three you owned.
The number of shares=2,000,0000/3=666666.67
stock price becomes=4.25*3=12.75
As I mentioned the overall value remains the same in both the cases.
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