CHAPTER 18 PROBLEM 20

The Wallace Corporation has done very well in the stock market during the last three years—its stock has risen from $18 per share to $44 per share.
Its current statement of net worth is:
Common stock (3 million shares issued 
at par value of $10 per share, 
9 million shares authorized)		$30,000,000
Paid-in capital in excess of par		15,000,000
Retained earnings		  45,000,000
   Net worth		$90,000,000
a.	What changes would occur in the statement of net worth after a two-for-one stock split?
b.	What would the statement of net worth look like after a three-for-one stock split?
c.	Assume Wallace Corporation earned $6 million. What would its earnings per share be before and after a two-for-one stock split and after a three-for-one stock split?
d.	What would the price per share be before and after the two-for-one and the three-for-one stock splits? (Assume that the price-earnings ratio of 22 stays the same.)
e.	Should a stock split change the price-earnings ratio for Wallace?

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