Question

Mainway Toy Company currently has 10,000 shares of common stock outstanding. Its management believes that its current stock price of $95 per share is too high. The company is planning to conduct stock splits in the ratio of 2 for 1 as described in the animation. If Mainway Toy Company declares a 2-for-1 stock split, the price of the company's stock after the split, assuming that the total value of the firm's stock remains the same after the split, will be ____________.

Answer 1

$47.50

Step-by-step explanation:

A stock split implies dividing the existing number of shares into multiples in order to enhance the liquidity of the firm's shares.

It is noteworthy that the stock split does not add any value to the existing stock account balance as well as paid in surplus account value since only the number of issued shares changed , values are kept constant.

share price after split=share price before split/stock split ratio

share price before split=$95

stock split ratio=2/1

share price after split=$95/2/1

share price after split=$95*1/2

share price after split=$47.50