Question

Luther Industries currently has 5 million shares outstanding and its stock is currently trading at $40 per share. Assuming Luther issues a 5:2 stock split, then Luther's new share price is closest to:

Answer 1

Answer:

The Luther's new share price is closest to $16

Explanation:

For computing the new share in case of the stock split, first we have to find out the value of total share which is shown below:

Value of share = Outstanding number of shares × price per share

                        = 5,000,000 × $40

                        = 200,000,000

Now we find out the outstanding shares after the stock split which equal to

= Value of share × stock split ratio

=5,000,000 × 5 ÷ 2

= 12,500,000

Then, compute the new share price which is equal to

= Value of shares ÷ stock split outstanding shares

= 200,000,000 ÷ 12,500,000

= $16

Hence,  Luther's new share price is closest to $16