Asked by Khalifa Al Romaithi on May 10, 2024
Verified
The Winston Co. has 120,000 shares of stock outstanding. The current market value of the firm is $4.5 million. The company has retained earnings of $2.1 million. The company is planning a 3-for-1 stock split. What will the market price per share be after the split?
A) $12.50
B) $25.00
C) $37.50
D) $56.25
E) $75.00
Retained Earnings
The portion of a company's profit that is held back and not paid out as dividends, used for reinvestment in the business or debt repayment.
Stock Split
A corporate action that increases the number of shares in a company by issuing more shares to current shareholders proportional to their ownership.
Market Value
The current value of an asset or company based on the price that it can be sold in the open market.
- Penetrate the methodology and fiscal implications of stock splits and their influence on the market price for each share.
Verified Answer
KF
Kenyon FlakeMay 12, 2024
Final Answer :
A
Explanation :
The market value of the firm remains the same before and after the split, $4.5 million. Before the split, there are 120,000 shares, so after a 3-for-1 split, there will be 120,000 * 3 = 360,000 shares. The market price per share after the split is $4.5 million / 360,000 shares = $12.50.
Learning Objectives
- Penetrate the methodology and fiscal implications of stock splits and their influence on the market price for each share.