In a Three for Two Stock Split for a Company

question 106

Multiple Choice

In a three for two stock split for a company that previously had 1 million shares outstanding selling at $100 per share and a total market value of $100 million, which of the following is true:

• A)The number of outstanding shares will drop to 666,666, and the stock price will increase to $150
• B)The number of outstanding shares will increase to 1.5 million, and the stock price will drop to $66.67
• C)The number of outstanding shares will increase to 1.5 million, and the stock price will rise to $133.33
• D)The market value of the firm will increase 1 million shares x (.15) = 1.5 million
• Since total market value does not change:

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Definitions:

Nominal Value

The face value of a bond or stock, which is the amount paid at maturity, not necessarily its current market value.

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Termination Benefits

Employee benefits that are payable as a result of either: (a) an entity’s decision to terminate an employee’s employment before the normal retirement date; or (b) an employee’s decision to accept an offer of benefits in exchange for the termination of employment.

Plan Of Termination

A proposed strategy or arrangement for concluding operations, typically associated with business closures or ending specific contracts.