Answer to Question #194294 in Economics of Enterprise for john

Question

Becker Financial recently declared a 2-for-1 stock split. Prior to the split, the stock sold for $80 per share. If the firm's total market value is unchanged by the split, what will the stock price be following the split? 

Answer 1

The new stock price is calculated by dividing the old price by the split ratio

Given:

old price = 80, split ratio = 2 for 1

New stock price = 100/2/1

New stock price = 80/2

New price = $40

Hence stock price following the split = $40