Asked by Savannah LaPort on May 12, 2024
Verified
Robinson's has 15,000 shares of stock outstanding with a market price of $36 per share. The balance sheet shows $330,000 in the common stock account and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will the market price per share be after the split?
A) $18
B) $24
C) $42
D) $48
E) $54
Stock Split
A corporation's decision to divide its existing shares into multiple shares to boost the liquidity of the shares, though the market capitalization remains the same.
Market Price
The prevailing cost at which a service or asset is offered for sale or purchase in the open market.
- Assimilate the process and financial aspects of stock splits and their effect on the market's price per share.
Verified Answer
GW
Garywinthorp WinthorpMay 18, 2024
Final Answer :
B
Explanation :
In a 3-for-2 stock split, for every 2 shares an investor holds, they receive 3 shares. This increases the number of shares by a factor of 1.5 (3 divided by 2). The market price adjusts inversely to maintain the same market capitalization. Therefore, the new price per share is $36 (original price) divided by 1.5 (split factor), resulting in $24 per share.
Learning Objectives
- Assimilate the process and financial aspects of stock splits and their effect on the market's price per share.