See Description, a 3-for-4 reverse split

Question

Last week, Mike owned (x) shares of Spoonaire stock. Yesterday, the company instituted a 3-for-4 reverse split. The pre-split price per share was $4.20. The number of shares outstanding before the split was (y).

a. How many shares did Mike hold after the split? What was the post-split price per share?
b. What was the post-split number of outstanding shares? What was the post-split market cap?

Answer 1

a) Mike owns 3/4 or 75% of the pre-split number after the split. The post split price is 4/3 of $4.20 or 4/3 x $4.20 = $5.60

 

A way to check this answer is that the value of the shares should be the same pre-split vs. post split.

 

Assume he had 100 shares @ $4.20/share = $420

 

Applying the split, the 75 shares @ $5.60 = $420

 

b) The post split number of outstanding shares is 75% of the pre-split number. The market cap is the same pre- and post- split.