Question

A corporation has 50,000 shares of $28 par stock outstanding that has a current market value of $150 per share. If the corporation issues a 4-for-1 stock split, the market value of the stock will fall to approximatelya. $7.00
b. $112.00
c. $37.50
d. $600.00

Answer 1

Answer:

c. $37.50

Explanation:

A stock split refers to a situation whereby a company issue its new shares to the existing shareholders of the company in proportion of the current holdings of each shareholder.

When there is a stock split, it will make the number of shares of the company will increase, leads to a fall in the market price per share to the extent of the number of the split, but the total market capitalization of the company will still remain the same without causing dilution.

Based on the explanation, the price to which the market value of the stock of the corporation will fall to after the stock split can be calculated as follows:

New market value of the stock = Current market value ÷ Number of stock received per stock

                                                    = $150 ÷ 4

New market value of the stock = $37.50

Therefore, the market value of the stock will fall to approximately $37.50 from $150 if the corporation issues a 4-for-1 stock split.

Answer 2

Answer:

c. $37.50

Explanation:

The computation of the market value of the stock split is shown below:

= Current market value ÷ four ÷ one

= $150 per share ÷ 4 ÷ 1

= $150 per share ÷ 4

= $37.50

Simply we divide the current market value by the four for one stock split ratio so that the correct market value can come. The four for one reflect the ratio criteria which is mentioned in the question

All other information which is given is not relevant. Hence, ignored it