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Downie Foods recently completed a 4-for-1 stock split. Prior to the split, its stock sold for $120 per share. If the firm's total market value increased by 5% as a result of increased liquidity caused by the split, what was the stock price following the split?

Respuesta :

Answer:

stock price = $31.50

Explanation:

given data

stock sold =  $120 per share.

total market value increased = 5%

stock split = 4 for 1

solution

we get here stock price that is express as

stock price = stock sold  + ( stock sold × market value increase ) × stock split   ............................1

put here value

stock price = 120 + ( 120 × 5% ) × [tex]\frac{1}{4}[/tex]    

stock price = 126 × [tex]\frac{1}{4}[/tex]

stock price = $31.50

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