The common stock of Margot, Inc. is selling for $56 a share. The book value per share is $12. Currently, the ﬁrm has a total market value of $89,600. How many shares of stock will be
Outstanding if the ﬁrm does a 2-for-1 stock split?

Question

Quizplus · Accepted Answer

If the firm does a 2-for-1 stock split, the number of outstanding shares will double, but the book value per share will be halved. Thus, the new book value per share will be $6 ($12/2). The total market value will remain the same at $89,600. 
Therefore, the new number of outstanding shares will be: 
$89,600 total market value / $56 current stock price = 1,600 shares currently outstanding 
1,600 shares currently outstanding x 2 = 3,200 shares after the stock split.

The Common Stock of Margot, Inc