A Stock That Was Selling for $48 a Share Split

question 1

Multiple Choice

A stock that was selling for $48 a share split 2-for-1.Before the split,the company had 3.4 million shares of stock outstanding.What is the post-split number of shares outstanding?

• A) 10.2 million
• B) 6.8 million
• C) 2.4 million
• D) 1.7 million

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Definitions:

Profitability Index

A financial metric used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.

Payback Period

The duration required for an investment to generate cash flows sufficient to recover its initial cost.

AAR

Average Annual Return, which measures the average return generated by an investment per year over a specified period.

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and outflows.