In March 2000, Country Bumpkin shares are trading at £15, having descended from their high of £35 in a period of volatile trading.
Alan is advised that the company should have a share split to reduce the share price and make them more marketable. The problem with shares that cost £15 is that the high price inhibits trading. Psychologically, investors would rather buy 5 shares costing £3 than one share costing £15.
CB has a "5 for 1" share split. Shareholders are issued with 4 new shares for every one that they hold, and the total number of shares increases from 17 million to 85 million.
Prior to the split, you had 700 shares in the company, acquired at a cost of £700. You now have 3,500 shares. From a tax point of view, each of those shares is deemed to have been acquired at 20p, with the total cost being £700.
The market adjusts the price of CB shares downward to reflect the higher number of shares in issue. Before the share split they stood at £15. After the split, they trade at £3.
Recommend ReadingBook offers!
|
|
Quality Money Management
Andrew Kumiega, Benjamin Van Vliet |
| Our price: £41.39
Normally: £45.99 |
|
|
Stop and Make Money
Richard W. Arms |
| Our price: £38.25
Normally: £45.00 |
|
|
Value at Risk and Bank Capital Management
Francesco Saita |
| Our price: £37.59
Normally: £46.99 |
