The Tinslow Co.has 125,000 shares outstanding at a market price of £93 a share.The company has just announced a 7-for-3 stock split.What will the market price per share be after the split?

Question

Quizplus · Accepted Answer

A 7-for-3 stock split means that for every 3 shares that someone held before the split, they now have 7. So, the total number of shares outstanding will increase to 125,000 x (7/3) = 291,667 shares. 
However, the total value of the shares should remain the same, so we can calculate the new market price per share by dividing the original market price by 7/3:
£93 / (7/3) = £39.86
Therefore, the market price per share after the split will be £39.86, which is choice B.