Becker Financial recently declared a 2-for-1 stock split.Prior to the split,the stock sold for $80 per share.If the firm's total market value is unchanged by the split,what will the stock price be following the split?
A)$36.10
B)$38.00
C)$40.00
D)$42.00
E)$44.10

Question

Quizplus · Accepted Answer

In a 2-for-1 stock split, the number of shares is doubled and the stock price is halved. Therefore, after the split, there will be twice as many shares in the market, but each share will be worth half the original price.

Since the total market value is unchanged by the split, we can calculate the new stock price by dividing the original market value by the new number of shares:

Market Value before Split = $80 x N shares
Market Value after Split = $40 x 2N shares

Setting these equal, we get:

$80 x N = $40 x 2N

Simplifying, we get:

N = 2

Therefore, after the split, there will be 2 x N = 4 shares, and each share will be worth $40.

Hence, the answer is C ($40.00).

Becker Financial Recently Declared a 2-For-1 Stock Split