Question

Candela Company has retained earnings of $500,000, common stock of $400,000, and total common stockholders’ equity of $1,200,000. It has 200,000 shares of $2 par value common stock outstanding which is currently selling for $5 per share. If Candela Company declares a 2-for-1 stock split on its common stock, what will occur?

Answer 1

Answer:

Stock-split will lead to increase in number of Candela's shares without increase in market value or capitalization

Explanation:

Stock split will increase Candela's shares from 200000 @$2 nominal value to 400,000 @$1. While the selling price will now reduce from $5 to $2.5. Such that the market capitalization or value of the company is still the same because 2 new shares equal exactly 1 old share.