Question

14. Alfonzo's Italian House has 17,000 shares of stock outstanding with a par value of $1 per share and a market price of $24.60 a share. The firm just announced a stock split of three- for-two. What will be the market price per share after the split?

    1. A) $16.40

    2. B) $18.60

    3. C) $28.20

    4. D) $24.60

    5. E) $36.90

Answer 1

Question:

Alfonzo's Italian House has 17,000 shares of stock outstanding with a par value of $1 per share and a market price of $24.60 a share. The firm just announced a stock split of three- for-two. What will be the market price per share after the split?

A) $16.40

B) $18.60

C) $28.20

D) $24.60

E) $36.90

Ans: A) $ 16.40

Explanatory Solution:

Given:

Number of Outstanding Stock = 17,000 Shares

Par Value of Stock = $ 1 Per Share

Current Market Price Per Share = $ 24.60

Stock Split = Three-for-Two Therefore, Split ratio = 3:2

To Calculate:

The Market Price Per Share After the Split:

Formula:

The Market Price Per Share After the Split = Current Market Price Per Share / Split Ratio

On putting the values in the formula, we get,

The Market Price Per Share After the Split = $ 24.60 / (3/2)

= $ 24.60 / 1.5

= $ 16.40

The Market Price Per Share After the Split = $ 16.40

Ans: A) $ 16.40