In a Reverse Stock Split

question 15

Multiple Choice

In a reverse stock split:

• A)the number of shares outstanding increases and owners' equity decreases.
• B)the firm buys back existing shares on the open market.
• C)the firm sells new shares on the open market.
• D)the number of shares outstanding decreases but owners' equity is unchanged.
• E)shareholders make a cash payment to the firm.

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flow given a specified rate of return.

Future Value

The value of an investment or a sum of money projected at a future date, calculated by applying interest or growth rates to the present value.

Time Value

The theory that a sum of money is more valuable if it's available immediately, rather than the same amount in the future, because of its earning capabilities.

Interest Rate

The percentage of a loan amount charged by the lender to the borrower for the use of money, typically expressed on an annual basis.