Final answer:
When a company declares a stock split, the number of shares owned by each investor increases, but the price per share decreases proportionally. Mr. Davis initially bought 100 shares at $60 per share and received 50 additional shares after the 3:2 split. His new cost basis is $40 per share, and he now has a total of 150 shares.
Step-by-step explanation:
When a company declares a stock split, the number of shares owned by each investor increases, but the price per share decreases proportionally. In this case, the company declared a 3:2 split, which means that for every 2 shares owned, the investor would receive an additional 1 share.
Mr. Davis initially bought 100 shares at $60 per share, so he would receive 100/2 = 50 additional shares. He would now have a total of 100 + 50 = 150 shares.
To calculate the new cost basis, we divide the initial cost by the new number of shares: $60 / 1.5 = $40 per share.
Therefore, the correct answer is A. Mr. Davis has a new cost basis of $40 per share and a total of 150 shares.