The Retail Outlet has 6,000 shares of stock outstanding with a par value of $1.00 per share.The current market value of the firm is $480,000.The balance sheet shows the capital in excess of par account value of $136,000 and retained earnings of $234,000.The company just announced a 2-for-1 stock split.What will the market price per share be after the split?

Question

Quizplus · Accepted Answer

Before the stock split, the total value of the company was 6,000 shares x $80 per share = $480,000. After the split, the number of outstanding shares will double to 12,000 shares.

To find the new market price per share, we divide the total value by the new number of shares:

$480,000 total value / 12,000 shares = $40 per share

Therefore, the market price per share after the split will be $40.

The Retail Outlet Has 6,000 Shares of Stock Outstanding with a Par