Mid-State BankCorp recently declared a 7-for-2 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)$20.63
B)$21.71
C)$22.86
D)$24.00
E)$25.20

Question

Quizplus · Accepted Answer

A 7-for-2 stock split means that for every 2 shares owned, 7 new shares are issued. This increases the number of outstanding shares but doesn't affect the total market value of the company.

Before the split, there were 1 share for $80, so the total market value of the company was 1 x 80 = $80.

After the split, there will be 7/2 = 3.5 shares for every 1 share owned previously.

The new stock price will be the old stock price divided by 3.5:

80/3.5 = $22.86

Therefore, the stock price following the split will be $22.86.

Mid-State BankCorp Recently Declared a 7-For-2 Stock Split