Question

A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 5-for-1 stock split, the market value of the stock after the split will be approximately

a. $25
b. $150
c. $5
d. $30

Answer 1

After the corporation issues a 5-for-1 stock split, the market value of the stock will be approximately $30 per share, as each share's value is divided by the number of shares it was split into.

Step-by-step explanation:

When a corporation issues a stock split, the number of shares increases, but the total market capitalization remains the same. In this scenario, a 5-for-1 stock split means each share is split into five, increasing the total number of shares, but the value of each individual share should decrease to a fifth of its pre-split value. The current market value of the stock is $150. After the 5-for-1 stock split, the new value per share will be $150 divided by 5, which equals $30. Therefore, the market value of the stock after the split will be approximately $30.