Preferred Products started business on March 1, 2012, and issued 100,000 shares of $2 par value common stock at a market price of $50 per share. One year later, the share price had soared to $120. If Preferred Products does a 3-for-1 stock split, the market value of the stock will drop to $60 per share.

Question

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After a 3-for-1 stock split, the market value per share would adjust to approximately 1/3 of its pre-split value, so if the pre-split market value was $120, the post-split value would be around $40 per share, not $60.

Preferred Products Started Business on March 1, 2012, and Issued