Question

Grullon Co. is considering a 7-for-3 stock split. The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split? a. $32.06 b. $33.75 c. $35.44 d. $37.21 e. $39.07

Answer 1

b. $33.75

Step-by-step explanation:

The computation of the stock's expected price after considering the stock split is shown below:

= (Current stock price × stock split ratio × 1 + increase percentage) ÷ stock split ratio

= ($75 × 3 × 1 + 0.05) ÷ 7

= 236.25 ÷ 7

= $33.75

Simply we consider the stock split ratio for computing the stock expected price. The 3 for 7 stock split ratio is relevant for the computation part