Peterson Paper Products Inc. has 2,400,000 outstanding shares of stock selling f

Question

Peterson Paper Products Inc. has 2,400,000 outstanding shares of stock selling for $52 per share. After a 2-for-1 stock split, how many shares of stock are outstanding and what is the change in the firm value (given no new information)?

4,800,000 shares and a change in value of $124,800,000

4,800,000 shares and a change in value of $0.00

1,200,000 shares and a change in value of $124,800,000

1,200,000 shares and a change in value of $0.00

4,800,000 shares and a change in value of $124,800,000

4,800,000 shares and a change in value of $0.00

1,200,000 shares and a change in value of $124,800,000

1,200,000 shares and a change in value of $0.00

Explanation / Answer

Correct answer is b

In case of 2:1 stock split number of shares become 2* 2400000 = 4800000

and price becomes 52/2 = 26

thus firm value remains the same when we multiply number of shares and price before and after the split

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