Question

Last week, Weschler Paint Corp. completed a 3-for-1 stock split. Immediately prior to the split, its stock sold for $150 per share. The firm's total market value was unchanged by the split. Other things held constant, what is the best estimate of the stock's post-split price

Answer 1

Answer: $50

Explanation:

The total value of the company did not change which would mean that the number of shares now outstanding still give the same value when added up.

The 3-for-1 stock split therefore simply increased the number of stock outstanding threefold while reducing its value by the same amount so that the Total Value remains the same.

Price of 1 stock is,

= 150/3

= $50