Question 1

a) The One Direction Company limited has 116,000 shares of stock outstanding with a par value of $1 per share and a market value of $23 a share. The company just announced a 2-for-3 reverse stock split. Currently, you own 32,000 shares of this stock.

What is value of your stock holding in One Direction? After this proposed reverse stock split what will be your value of your holdings? Is this stock split beneficial to you?

Question 2

A firm has a market value equal to its book value. Currently, the firm has excess cash of $600 and other assets of $5,400. Equity is worth $6,000. The firm has 500 shares of stock outstanding and net income of $900. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?