Robinson's has 15,000 shares of stock outstanding with a market price of $36 per share. The balance sheet shows $330,000 in the common stock account and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the market price per share be after the split?

Question

Quizplus · Accepted Answer

In a 3-for-2 stock split, for every 2 shares an investor holds, they receive 3 shares. This increases the number of shares by a factor of 1.5 (3 divided by 2). The market price adjusts inversely to maintain the same market capitalization. Therefore, the new price per share is $36 (original price) divided by 1.5 (split factor), resulting in $24 per share.

Robinson's Has 15,000 Shares of Stock Outstanding with a Market