Question

Tyler Weinrich, a single investor in the 15% federal tax bracket, owns 150 shares of Newmont Exploration. The stock has risen from its price of $40 a share to $75 a share. Because the board of directors believes that Newmont Exploration will be more actively traded in the $40 to $60 range, it has just announced a 3-for-1 stock split. Assuming no other information came out about Newmont Exploration, how many shares would Tyler have and what would be their price after the split?

Answer 1

Answer:

450 shares

$25

Explanation:

a 3 for 1 stock split is when 1 unit of shares is increased by 3

150 shares becomes (150 x 3) = 450

price becomes = $75/3 = $25

stock splits have no economic effect on the company and total shareholders wealth does not change

price / earnings does not change and market equity does not change