A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120. If the corporation issues a 5-for-1 stock split, the par value of the stock after the split will be

Question

Quizplus · Accepted Answer

A 5-for-1 stock split means that for every 1 share an investor owns, they will receive 5 additional shares. Therefore, the total number of shares outstanding will increase by a factor of 5, to 250,000 (50,000 x 5). 
The market value of the stock will also decrease proportionally to the split, so after the split, each share will have a market value of $24 ($120/5). 
However, the par value of the stock will decrease by the same factor as the split, to $5 ($25/5). 
Therefore, the answer is A: $5.

A Corporation Has 50,000 Shares of $25 Par Stock Outstanding