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Chapter 1: Problem 13

Use the following spreadsheet to answer Exercises 13鈥�15. The split-ratio is entered in cells B2 and C2. For example, the ratio of 2-for-1 would be entered as a 2 in B2 and a 1 in C2. The number of pre-split shares is entered in B3 and the pre-split price is entered in B4. Write the spreadsheet formula that will calculate the post-split number of outstanding shares in C3. $$\begin{array}{|c|c|c|c|}\hline & {A} & {B} & {C} & {} \\ \hline 1 & {} & {\text { Pre-split }} & {\text { Post-spit }} \\ \hline 2 & {\text { Split ratio }} & {2} & {1} \\ \hline 3 & {\text { Outstanding shares }} & {} & {} \\\ \hline 4 & {\text { Price per share }} & {} & {} \\ \hline 5 & {\text { Market cap }} & {} & {} \\ \hline\end{array}$$

Short Answer

Expert verified
The spreadsheet formula to calculate the post-split number of outstanding shares is '=B3*B2'.

Step by step solution

01

Understanding the Split-Ratio

In a 2-for-1 split (as shown in cells B2 and C2), for every share that exists, two will exist after the split. So, given the number of pre-split shares, the total number of post-split shares would be twice the pre-split number.
02

Calculating the Post-Split Outstanding Shares

The formula to calculate the post-split outstanding shares is simply multiplying the pre-split shares (B3) by the split ratio (B2). Therefore, the formula to be written in cell C3 is '=B3*B2'.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Financial Algebra
Understanding financial algebra is fundamental when dealing with financial spreadsheets, like those that calculate the effects of a stock split. Financial algebra combines the rules of algebra with financial formulas to solve monetary problems.

In the context of stock splits, financial algebra helps articulate the relationship between the pre-split and post-split number of shares, and the price per share. For example, in a 2-for-1 stock split, the algebraic expression utilized to determine the new quantity of shares is to multiply the original number of shares by 2. It is essential to grasp these financial relationships to correctly perform calculations related to investments and market capitalization.

By learning the algebraic underpinnings, students gain the capacity to analyze financial scenarios and make informed decisions based on quantitative data. Financial algebra empowers students to interpret trends, predict outcomes and apply mathematical principles to real-world financial problems.
Spreadsheet Formulas
Spreadsheet formulas are powerful tools used to perform automatic calculations on data within a spreadsheet. These formulas can range from simple arithmetic operations to complex financial calculations. Understanding how to craft and apply these formulas is crucial when dealing with financial data analysis, especially in stock management tasks like calculating the effects of stock splits.

To input a formula, you typically begin with an equal sign (=), followed by the formula's structure, which references other cells, constants, and mathematical operators. For instance, in our stock split problem, the formula '=B3*B2' in cell C3 directly refers to the values in cells B3 (the number of pre-split shares) and B2 (split ratio), to deliver the number of post-split shares. Excelling in spreadsheet formulas entails understanding function syntax, cell referencing, and the logic behind computational processes.

Knowledge of spreadsheet formulas enhances a student's efficiency by enabling them to automate calculations, reducing manual errors, and allowing more time to analyze and interpret the data output.
Outstanding Shares Calculation
Calculating outstanding shares is a critical skill in understanding a company's equity structure. Outstanding shares represent the total shares that are currently held by all shareholders, including share blocks held by institutional investors and restricted shares owned by the company鈥檚 insiders.

After a stock split, it's imperative to calculate the new number of outstanding shares to maintain accurate records and for reporting purposes. The straightforward formula for a stock split, as demonstrated in our exercise, requires multiplying the existing number of shares by the split ratio. For instance, in a 2-for-1 split, if a company with 1,000,000 shares undergoes a split, it will have 2,000,000 shares outstanding afterwards. The calculation formula '=B3*B2' mirrors this process in a spreadsheet format, which helps in quick computations.

Students must learn to calculate the updated outstanding shares to comprehend market capitalization changes and to analyze the dilution of individual stock ownership. Understanding these changes is essential for anyone studying company valuations, investment strategies, or the stock market behavior.

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Most popular questions from this chapter

Use the following data to construct a stock bar chart for the 5-day period. $$\begin{array}{|c|c|c|c|c|c|} \hline {\text { Day }} & {\text { Open }} & {\text { close }} & {\text { High }} & {\text { Low }} & {\text { Volume }} \\\ \hline 1 & {20.48} & {20.24} & {20.50} & {20.20} & {58,000,000} \\ \hline {2} & {20.21} & {20.25} & {20.30} & {20.00} & {52,000,000} \\ \hline {3} & {20.30} & {20.10} & {20.34} & {20.02} & {42,000,000} \\ \hline {4} & {20.17} & {20.44} & {20.45} & {20.10} & {50,000,000} \\ \hline {5} & {20.48} & {20.61} & {20.65} & {20.36} & {50,000,000} \\ \hline \end{array}$$

Use the following information posted at the end of the trading day on April 22 to answer Exercises 2鈥�7. $$\begin{array}{|c|c|c|c|c|c|c|c|c|}\hline 52 \text {-week } & 52 {\text {-week }} & {} & {} & {} & {} & {\text { Sales of }} & {} & {} \\ \text { High } & {\text { Low }} & \text { Symbol } & \text { Stock } & \text { Last } & \text { Change } & 100 \text {s} & {\text { High }} & {\text { Low }} \\\ \hline \text { 151,650 } & {107,200} & \text {BRK/A} & \text {Berkshire} & {127,200} & \text { ?1000 } & {4.11} & {128,600} & {127,000} \\ {} & {} & {} & \text { Hathaway Inc } & {} & {} & {} & {} & {} \\ \hline {120.2} & {66.39} & \text{FCX} & \text{Freeport-McMoRan} & {118.65} & {3.51} & {147,540} & {120.06} & {116.64} \\ {} & {} & {} & \text{Copper & Gold Inc} & {} & {} & {} & {} & {} \\ \hline {63.69} & {46.64} & \text{MCD} & \text{McDonald鈥檚} & {58.35} & {?0.55} & {106,077} & {58.77} & {57.42} \\ {} & {} & {} & \text{Corporation} & {} & {} & {} & {} & {} \\ \hline {266.81} & {112.11} & \text{PTR} & \text{PetroChina} & {137.19} & {+2.16} & {16,266} & {140.92} & {136.09} \\ {} & {} & {} & \text{Company Ltd} & {} & {} & {} & {} & {} \\\ \hline {39.63} & {27.51} & \text{TXN} & \text{Texas Instruments Inc} & {28.85} & {?1.74} & {288,012} & {29.64} & {28.38} \\ \hline {144.04} & {92.18} & \text{WBK} & \text{Westpac Banking} & {113.62} & {2.45} & {332.7} & {115.35} & {113.50} \\ {} & {} & {} & \text{Corporation} & {} & {} & {} & {} & {} \\\ \hline \end{array}$$ What is the difference between the day鈥檚 high and low prices for McDonald鈥檚 Corporation?

Jake bought d shares of stock for x dollars per share years ago. His stock rose in price and eventually hit a price that would earn him a 140% capital gain. He decided to sell half of his d shares. a. Represent half of the d shares algebraically. b. Represent the capital gain earned on each of the shares that were sold algebraically. c. Represent the capital gain earned on all of the shares that were sold algebraically. d. Represent the total value of the shares that were sold algebraically. e. Jake keeps the remaining half of the shares for several more years. The company goes bankrupt and those shares become worthless. Jake had a large gain on the shares he sold earlier鈥攁nd took a loss on the shares that became worthless. Did investing in the d shares result in a capital gain or loss for Jake? Explain using the algebraic expressions you created in parts a鈥揹.

Tomika owns \(\frac{3}{5}\) of a law partnership. What percent of the partnership does she own?

On April \(25,\) Berkshire Hathaway Inc closed at \(\$ 126,875\) per share. One year earlier, one share closed at \(\$ 108,750 .\) What was an approximate one- year percent change?
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