The Winston Co. has 120,000 shares of stock outstanding. The current market value of the firm is $4.5 million. The company has retained earnings of $2.1 million. The company is planning a 3-for-1 stock split. What will the market price per share be after the split?

Question

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The market value of the firm remains the same before and after the split, $4.5 million. Before the split, there are 120,000 shares, so after a 3-for-1 split, there will be 120,000 * 3 = 360,000 shares. The market price per share after the split is $4.5 million / 360,000 shares = $12.50.