The Peanut Shack has 3,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $178,200. The company just announced a stock split of seven-for-three. What will be the market price per share after the split?

Question

Quizplus · Accepted Answer

Before the stock split, the total value of the company was 3,500 shares x $1 per share = $3,500. 
After the stock split, the number of shares will increase to (3,500 x 7) / 3 = 8,166.67, which we'll round down to 8,166 shares. 
The par value per share will decrease to $1 / (7/3) = $0.43 per share. 
Therefore, the new market price per share will be: 
$178,200 / 8,166 shares = $21.82 per share.

The Peanut Shack Has 3,500 Shares of Stock Outstanding with a Par