A corporation has 12,000 shares of $20 par value stock outstanding that has a current market value of $150. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately $50.

Question

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When a stock split occurs, the number of shares outstanding increases and the par value decreases proportionally. In this case, if the corporation issues a 4-for-1 stock split, the number of shares outstanding will become 48,000 (12,000 x 4) and the par value will decrease to $5 ($20 / 4). The market value of the stock will not necessarily fall to $50, as it will depend on market demand and other factors.

A Corporation Has 12,000 Shares of $20 Par Value Stock