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9. The Peanut Shack has 3,500 shares of stock outstanding with a par value of $1...

9. The Peanut Shack has 3,500 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $178,200. The company just announced a stock split of seven-for-three. What will be the market price per share after the split? Please show work.

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Answer #1

Current Market price = $178200

Total number of shares outstanding = 3500

Current earnings per share = $178200 / 3500 = $50.91

Now,

A 7 for 1 stock split means there will be 7 shares for every 3 shares held. So, after stock split,

Total number of shares outstanding = 7 * 3500 / 3 = 8166.67

Total market price will remain same, so

Total market price = $178200


Now, Market price per after stock split is:

Market price per share after stock split = Total market price / Total number of shares outstanding after stock split

Market price per share after stock split = $178200 / 8166.67 = $21.82

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