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

A 3-for-2 stock split means that each shareholder will receive 1.5 new shares for every 1 share they currently own. In other words, the number of outstanding shares will increase by 50%. After the split, the total number of shares outstanding will be 15,000 x 1.5 = <<15000*1.5=22500>>22,500. The total equity of the firm (common stock + retained earnings) remains the same at $519,000 (330,000 + 189,000). Therefore, the new market price per share will be $519,000 / 22,500 = $<<519000/22500=23.07>>23.07, or approximately $24. The correct answer is B.

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