Question

If a company sells 5,000,000 shares of ownership stock for $2 per share, and the value of each share rises to $3, what is the market capitalization of the company?

a) $8,000,000
b) $15,000,000
c) $10,000,000
d) $5,000,000

Answer 1

To calculate the market capitalization of a company after its share price rises, multiply the total shares by the new price per share. In this case, with 5,000,000 shares at $3 each, the market cap is $15,000,000.

Step-by-step explanation:

When calculating the market capitalization of a company, we must multiply the total number of shares by the current market price per share. If a company initially sells 5,000,000 shares at $2 per share and the share price rises to $3, the new market capitalization can be found by multiplying 5,000,000 shares by the new share price of $3. Therefore, the market capitalization after the share price increase would be:

5,000,000 shares × $3 per share = $15,000,000.

This figure represents the total value of all shares the company has issued at the current market price and is a key indicator of the company's size and investment desirability. Remember, market capitalization is a fluid value and can change as share prices fluctuate due to market conditions.