Question

Tangshan mining has 100,000 shares outstanding and just declared a 3-for-2 stock split. before the announcement, the firm's shares were trading at $50.00 per share. after the stock dividend, the firm's shares should trade at ________ per share.

Answer 1

In this problem, the market net worth of the stocks of Tangshan mining is $5,000,000 (100,000 shares x $50.00 per share). The stock split would not affect the price of the stock. This transaction would only affect the number of shares of the company. Since this is a 3-for-2 stock split, this is clearly a split up. Therefore, this transaction would increase the number of shares while reducing its price per share. The shares would become 150,000 shares now ({100,000 shares/2} x 3). To get the current price of the share, you just need to divide $5,000,000 by the new number of shares which is 150,000 shares. You would then get $33.33 per share.