Grullon Co.is considering a 8-for-4 stock split.The current stock price is $75.00 per share,and the firm believes that its total market value would increase by 6% as a result of the improved liquidity that should follow the split.What is the stock's expected price following the split?
A) $47.30
B) $41.34
C) $40.15
D) $39.75
E) $31.40

Question

Quizplus · Accepted Answer

First, calculate the new stock price immediately after the split without considering the increase in total market value: $75 / (8/4) = $37.50. Then, account for the 6% increase in total market value: $37.50 * 1.06 = $39.75.