Asked by Jennifer Vandiver on May 03, 2024
Verified
A corporation has 50,000 shares of $28 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately
A) $7.00
B) $112.00
C) $37.50
D) $600.00
Stock Split
An action by a company to divide its existing shares into multiple shares to boost the liquidity of the shares, although the overall value of the company does not change.
Market Value
The current price at which an asset or service can be bought or sold in an open market.
- Comprehend the influence of a stock's market value on the execution of corporate maneuvers like dividends and stock splits.
- Understand the reasons behind and outcomes of stock splits and stock dividends with respect to par value, market value, and the equity of shareholders.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
C
Explanation :
After a 4-for-1 stock split, each share is divided into 4, so the market value per share is divided by 4 as well. Therefore, the new market value is $150 / 4 = $37.50.
Learning Objectives
- Comprehend the influence of a stock's market value on the execution of corporate maneuvers like dividends and stock splits.
- Understand the reasons behind and outcomes of stock splits and stock dividends with respect to par value, market value, and the equity of shareholders.