Question

A corporation has 71,432 shares of $28 par stock outstanding that has a current market value...

A corporation has 71,432 shares of $28 par stock outstanding that has a current market value of $256 per share. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximately

Homework Answers

Answer #1

Market Capitalization of the company will remain same even after the stock split.

Market Capitalization = Market Price of the share * No of shares

Therefore, Market Capitalization of the company = $256 * 71,432 = $18,286,592

As the corporation issued a 4-for-1 stock split, it means for every one share of face value of $28 four shares of $7 will be issued to the shareholders.

No of shares after the stock split = 71,432*4 = 285,728 shares

As we know that:

Market Capitalization = Market Price after stock split * No of shares

$18,286,592 = Market Price after stock split * 285,728

Therefore, Market Price after stock split = $18,286,592/285,728 = $64

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