Q&A Educational Co. has 56,000 shares of stock outstanding at a market price of $52 a share. The company has just announced a 5-for-4 stock split. What will the market price per share be after the
Split?

Question

Quizplus · Accepted Answer

A 5-for-4 stock split means that for every 4 shares held by an investor, they will receive an additional share for free, resulting in a total of 5 shares. Therefore, the number of shares outstanding will increase by 25% (56,000 x 0.25 = 14,000) to a total of 70,000 shares.

To determine the new market price per share, we divide the old price by the split ratio (4/5):
$52 ÷ (4/5) = $52 ÷ 0.8 = $65

Therefore, the market price per share after the split will be $65. However, this option is not given in the choices.

We can then use the same calculation above to determine the closest option given:
$52 ÷ (4/5) = $52 ÷ 0.8 = $65 
$65 ÷ 5 = $13
$65 - $13 = $52

Thus, the market price per share after the split will be $52 (option B).