on june 5, cigna instituted a 3 - for - 1 stock split. before the split, cigna had 200 million shares with a…

on june 5, cigna instituted a 3 - for - 1 stock split. before the split, cigna had 200 million shares with a price of $168 per share. a. how many shares were outstanding after the split? (state your answer in rounded to millions) b. what was the post - split price per share? c. show that this split was a monetary non - event for the corporation.

on june 5, cigna instituted a 3 - for - 1 stock split. before the split, cigna had 200 million shares with a price of $168 per share. a. how many shares were outstanding after the split? (state your answer in rounded to millions) b. what was the post - split price per share? c. show that this split was a monetary non - event for the corporation.

Answer

Explanation:

Step1: Calculate post - split shares

Use the formula for stock - split to find the number of outstanding shares after the split. A 3 - for - 1 stock split means the number of shares is multiplied by 3. $200\times3 = 600$ (million shares)

Step2: Calculate post - split price per share

The total market value of the company remains the same before and after the split. Let $P_1$ be the pre - split price and $P_2$ be the post - split price, and $n_1$ be the pre - split number of shares and $n_2$ be the post - split number of shares. Then $n_1\times P_1=n_2\times P_2$. We know $n_1 = 200$ million, $P_1=$168$, and $n_2 = 600$ million. So $P_2=\frac{n_1\times P_1}{n_2}=\frac{200\times168}{600}=$56$

Step3: Prove it's a non - monetary event

Pre - split market value: $V_1=n_1\times P_1=200\times168 = 33600$ (million dollars) Post - split market value: $V_2=n_2\times P_2=600\times56 = 33600$ (million dollars) Since $V_1 = V_2$, the stock split is a monetary non - event for the corporation.

Answer:

a. 600 million b. $56 c. Pre - split market value: $200\times168 = 33600$ million dollars. Post - split market value: $600\times56 = 33600$ million dollars. Since pre - split and post - split market values are equal, it is a monetary non - event.