The common stock of Vicary, Inc. is selling for $78 a share. Currently, the ﬁrm has a total market value of $6,825,000. How many shares of stock will be outstanding if the ﬁrm does a 3-for-2 stock
Split?

Question

Quizplus · Accepted Answer

To find the number of outstanding shares after a 3-for-2 stock split, we need to multiply the current number of shares by the reciprocal of the stock split ratio. 
Reciprocal of 3/2 is 2/3. 
Let's assume the current number of outstanding shares is x. Then, 
New number of outstanding shares = x * (2/3)

According to the question, 
Market value of the firm = $6,825,000 
Current Stock price = $78

Market value of the firm = Number of outstanding shares * Stock price

$6,825,000 = x * $78

x = $6,825,000 / $78 = 87,500

New number of outstanding shares after the stock split = 87,500 * (2/3) = 58,333 + 87,500 = 131,250

Hence, the correct choice is D.

The Common Stock of Vicary, Inc