Asked by Scott Nguyen on May 30, 2024
Verified
SesameSweet Inc. has 220,000 shares outstanding with a market price of $12 per share. On the balance sheet, common stock is $760,000, and retained earnings are $275,000. There are no transactions costs. Suppose SesameSweet declares a 3-for-1 stock split. What is the market price of a share of the company's stock after the split?
A) $4.00
B) $5.75
C) $6.00
D) $8.00
E) $36.00
Stock Split
A corporate action that increases the number of a corporation's outstanding shares by issuing more shares to current shareholders.
Market Price
The current trade value at which a service or asset can be exchanged.
Shares Outstanding
The complete count of a corporation's shares currently in possession of all shareholders, including those owned by institutional investors and the restricted shares held by the company's executives and insiders.
- Estimate the revised share price and the equity position of shareholders after distinct corporate actions like stock dividends, stock splits, and reverse splits.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
A
Explanation :
After a 3-for-1 stock split, each existing share is divided into three shares, effectively tripling the number of shares outstanding. The total market value of the company doesn't change; only the number of shares and price per share adjust. Therefore, the new price per share is $12 (original price) divided by 3 (split ratio), resulting in $4.00 per share.
Learning Objectives
- Estimate the revised share price and the equity position of shareholders after distinct corporate actions like stock dividends, stock splits, and reverse splits.