Frederic's Ltd in Vancouver has 47,500 shares of stock outstanding with a par value of $1.00 per share and a market price of $42 a share. 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 for every two shares a shareholder owns, they will receive an additional share. In this case, Frederic's Ltd would issue an additional 23,750 shares (47,500/2) to its shareholders. This means the total number of shares outstanding would be 71,250 (47,500 + 23,750).

The par value of each share would still be $1.00, but the market price per share would adjust by the same ratio as the split.

Market price before split = $42.00 per share
Ratio of split = 3/2
New market price per share = $42.00/ (3/2) = $28.00

Therefore, the market price per share after the split would be $28.00 (Choice B).

Frederic's Ltd in Vancouver Has 47,500 Shares of Stock Outstanding