Question

Richmond Corporation has 50,000 shares of 20 par value common stock outstanding. The current fair market value of its stock is 32 per share. The Corporation splits its common stock on a 4 for 1 basis. After the split, the par value per share is

Answer 1

Solution:

As per the information given in the question we have

Par value per share before stock split = 20 per share

Stock split ratio = 4 for 1

This means that for every 1 existing share held, 4 shares will be issued in the split

Thus Existing shares held = 1 share   ;   Shares issued on stock split = 4 shares

The par value per share after the split is calculated as follows:

= Par value per share before stock split * ( Existing shares held / Shares issued on split )

= 20 *( 1 / 4 )

= 20 * 0.25

= 5

After the split, the par value per share is = 5