Question

1 ​Ms. Jessica owns shares of Durian Company, which recently completed a 3-for-2 stock ​split. Prior to the split, she has 2% of company’s 10 million shares outstanding and its
​stock price was $200 per share. Before the split, the total market value of the company’s ​stock equaled $2 billion. 1.1 ​Determine the total number of shares and price per share for Durian Company after a ​3-for-2 stock split. Does the market value change?
​
1.2
shares that Ms. Jessica invested ​change after a 3-for-2 stock
​Would the total market value of Durian Company’s
split? Explain with supporting calculation.
​
1.3
​Give three most advantages for stock split.
​

Answer 1

1.
Initial market value=10*200=2000 million

Total number of shares=10*3/2=15 million
Price per share=200/(3/2)=133.3333333

New market value=15*133.33=2000 million
Market value remains unchanged

2.
Jessica iniital number of shares=10*2%=0.2 million
Jessica's initial market value=2%*10*200=40 million

Jessica's new number of shares=0.2*3/2=0.3 million
Jessica's new market value=0.3*133.333=40 million

Market value remains unchanged

3.
Improves liquidity

Make shares appealing to investors

Signal that company is doing well