An investor holds 1,450 shares of Meridian Tech common stock in a cash account. The board … — FINRA SIE (Securities Industry Essentials)

An investor holds $1,450$ shares of Meridian Tech common stock in a cash account. The board of directors declares a $1$ -for- $4$ reverse stock split, immediately followed by a cash dividend of $\$0.80$ per share payable on all post-split shares. Under the corporate action terms, any fractional shares resulting from the reverse split are liquidated for cash based on the pre-split market price of $\$16.00$ per share. Assuming the investor holds all shares through the record date, what is the total dollar amount of cash (including the fractional share liquidation payout and the cash dividend) that the investor will receive?

Answer: 321.6 USD

Answer

The total dollar amount of cash received by the investor is $321.60.

The reverse stock split reduces 1,450 shares by a factor of 4 to 362.5 shares. The investor receives 362 whole post-split shares and cash in lieu of the remaining 0.5 post-split share. Because 1 post-split share equals 4 pre-split shares, 0.5 post-split share corresponds to 2 pre-split shares, valued at 2 x

16.00 =

32.00. The cash dividend of

0.80 per share applies to the 362 whole post-split shares, yielding 362 x

0.80 =

289.60. Adding the two payouts together gives

32.00 +

289.60 =

321.60.

Step-by-Step Solution

Determine the number of post-split whole shares and fractional shares

362 whole post-split shares and 0.5 post-split fractional share

A 1-for-4 reverse stock split divides the initial 1,450 share position by 4, giving 362.5 post-split shares.

Calculate cash in lieu for the fractional share position

$32.00

The 0.5 post-split fractional share equals 2 pre-split shares (0.5 x 4). Liquidating 2 pre-split shares at

16.00 per share yields

32.00.

Compute the post-split cash dividend payout

$289.60

Cash dividends are paid only on whole outstanding shares after the corporate action. Multiplying 362 whole shares by the

0.80 dividend per share yields

289.60.

Sum total cash distributions

$321.60

Adding the fractional share cash payout (

32.00) to the dividend payment (

289.60) gives the total cash received ($321.60).

Key Concept

Reverse stock splits proportionally reduce share count and increase share price. Cash dividends post-split apply only to whole shares owned, while fractional share remainders are liquidated for cash based on agreed valuation terms.

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