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1)You own 5 % or 4,000 shares of Tonka, Inc
1)You own 5 % or 4,000 shares of Tonka, Inc. These shares have a total market value of $92,000. By what percentage will the total value of your investment in Tonka change if the company sells an additional 10,000 shares of stock at $21 a share and you do not buy any? A. -.96 % B. -.94 % C. -.92 % D. .00 % E. .02 % 120.
2)You own 8 % or 36,000 shares of Selma, Inc. Your shares have a total market value of $846,000. By what percentage will the total value of your investment in Selma change if the company sells an additional 50,000 shares of stock at $20 a share and you do not buy any? A. -.35 % B. -.48 % C. -.93 % D. -1.38 % E. -1.49 %
Expert Solution
1) Ans) A) -0.96%
Total no of shares before issue of additional shares = 4000/5% = 80000 shares
Price per share before issue of additional shares = 92000/4000 = 23 $
Price per share after issue of additional shares = (Total market cap before issue of additional shares) + (New shares issued x price per share) / (shares before issue of additional shares + Additional shares issued)
= (80000 x 23) + (10000 x 21) / 80000 + 10000
= 1840000 + 210000 / 90000
= 2050000/90000
= 22.78 $
% change of investment = 22.78-23/23
= -0.23/23
= -0.96%
2) Ans) E) -1.49%
Total no of shares before issue of additional shares = 36000/8% = 450000 shares
Price per share before issue of additional shares = 846000/36000 = 23.5 $
Price per share after issue of additional shares = (Total market cap before issue of additional shares) + (New shares issued x price per share) / (shares before issue of additional shares + Additional shares issued)
= (450000 x 23.5) + (50000 x 20) / 450000 + 50000
= 10575000 + 1000000 / 500000
= 11575000/500000
= 23.15 $
% change of investment = 23.15-23.5 / 23.5
= -0.35/23.5
= -1.49%
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