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:

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Quizplus · Accepted Answer

A three for two stock split means that for every two shares held by an investor, they will receive an additional share at no cost. Therefore, the number of outstanding shares will increase to 1.5 million (1 million x 1.5). However, the stock price will drop to maintain the total market value of the company. In this case, the stock price will be divided by three (since it is a three for two split) resulting in a stock price of $33.33 ($100/3). Therefore, after the split, the company will have 1.5 million shares outstanding selling at $33.33 per share, which maintains the total market value of $100 million.

In a Three for Two Stock Split for a Company