Dryden, Corp. has 500,000 shares of common stock outstanding, a P/E ratio of 11, and $900,000 earnings available for common stockholders. The board of directors has just voted a 5:2 stock split.
a. If you had 100 shares of stock before the split, how many shares will you have after the split?
b. What was the total value of your investment in Dryden stock before the split?
c. What should be the total value of your investment in Dryden stock after the split?
d. In view of your answers to (b) and (c) above, why would a firm's management want to have a stock split?