stock split n weighted averge calculation correct, average, effective, because, approved

studyn

Hi answer is correct.

Actually u miss out to multiply the 5 million shares by 12 mths.

In fact it work out like this. Since on Jan 1 there are 5 million outstanding, normally we will use no of share * no of months which result in 5million * 12 = 60 million

Next 60 million * (3/2) = 90 million. Now we need to divided the shares by 12 mths to get the ans: 90 million / 12 = 7,500,000

I'm using another example from schweser notes eg:

Jan 1 :10,000shares
Apr 1 :4000 share issue

1) 10000 * 12 outstanding mths = 120,000
2) 4000 * 9 outstanding mths = 36,000
3) total weighted average will be (120000+36000)/12 = 13 000 shares

in a nutshell for this qns, since u never multiply by 12 outstanding mths in first place, u can skip to divide the no of shares by 12 after multiply by 1.5 time split.

I recommend to attempt this type of qns, remember to multiply the number of outstanding mths to the number of shares first before divided by 12 to avoid any mis calculations.

cheers



Edited 1 time(s). Last edit at Saturday, October 16, 2010 at 02:20PM by vitalstrike82.

SWASH

Hello guys
I assumed that the correct answer to the below would be 625'000 common shares outstanding (7.5M / 12) because they asked for the weighted avg nbr of shares. Is the answer below wrong or is my thinking wrong?

Thanks

The SSP Company had 5 million shares outstanding on January 1. On February 15 the board of directors approved a 3:2 stock split, effective April 1. What is the weighted average number of shares outstanding for the SSP Company for year-end?
A) 7,500,000 shares.
B) 6,875,000 shares.
C) 5,625,000 shares.

Your answer: B was incorrect. The correct answer was A) 7,500,000 shares.

Stock splits and stock dividends are applied to all shares that existed at the beginning of the period and shares that were issued or repurchased during the period, but prior to the split or dividend. For SSP, the 5 million beginning-of-year shares outstanding are adjusted to 7.5 million shares (5.0

dontknow1987

If a company declares a stock split/stock dividend, the weighted average no.of shares outstanding should be calculated based on the assumption that the additional shares have been outstanding since the date that the original shares were outstanding.