Use the information for the question(s)below.
Luther Industries currently has 5 million shares outstanding and its stock is currently trading at $40 per share.
-Assuming Luther issues a 5:2 stock split,then Luther's new share price is closest to:
A)$32.00.
B)$16.00.
C)$24.00.
D)$30.00.

Question

Quizplus · Accepted Answer

A 5:2 stock split means that for every 2 shares owned, the investor will receive 5 shares. Therefore, the number of outstanding shares will increase to (5/2) x 5 million = 12.5 million shares. However, the total value of the company remains the same, which means that the new stock price will be $40/ (5/2) = $16.00.

Use the Information for the Question(s)below