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Prior to a 2-for-1 stock split, Marcus, Inc. stock sold for $120 per share. If the...

Prior to a 2-for-1 stock split, Marcus, Inc. stock sold for $120 per share. If the firm's total market value increased by 6% as a result of increased liquidity caused by the split, what was the stock price following the split?

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Answer #1

let

no. of shares outstanding before split = n

price per share before split = p = $120

market value of shares before split = p*n = 120n

due to the split , 2-for-1

No. of shares after split, N = 2*n

Price per share after split = P

Market value of shares after split = 1.06*M

also , Market value of shares after split = 2n *P

thus, 2n*P = 1.06*M

substituting value of M in above equation

2n*P = 1.06*(120n)

2P = 1.06*120

P = (1.06*120)/2 = $63.6

Hence price per share after split, = $63.6

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