Q&A Educational Co. has 56,000 shares of stock outstanding at a market price of $52 a share. The company has just announced a 5-for-4 stock split. What will the market price per share be after the split?

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Quizplus · Accepted Answer

After a 5-for-4 stock split, for every 4 shares someone owned, they now own 5. This increases the number of shares by 1/4 (25%). The original number of shares (56,000) increases by 25% to 70,000 shares. The total market value of the company doesn't change due to a stock split, so the market value remains at 56,000 shares * $52/share = $2,912,000. The new price per share is $2,912,000 / 70,000 shares = $41.60.