Question

Grullon Co. is considering a 7-for-3 stock split. The current stock price is $75.00 per share, and the firm believes that its total market value would increase by 5% as a result of the improved liquidity that should follow the split. What is the stock's expected price following the split?

Answer 1

Answer:

$33.75

Explanation:

7-for-3 stock split means that shareholders will get 7 shares for every 3 shares they own e.g. the total number of shares in the market will increase, thus reducing the market price. Following is the calculation of market price post - split:

Price of 7 shares post split (75 * 3)           225

Price per share post split (225 / 7)         32.14

Increase in price by 5% (32.14*5%)           1.61    

Total Increased price                                  34