can you please show me how to do this problem? 3. Pohlman Corp. is considering a

Question

can you please show me how to do this problem?

3. Pohlman Corp. is considering a 3-for-1 stock split. The stock currently sells for for $48 per share. (a) What will the price of the stock be after the split? (b) Before the split, you have 100 shares of Pohlman. How many shares do you have after the split? (c) What was the value of your investment (if you have 100 shares before the split) before and after the split? How has the split changed (or not changed) the overall value of your investment in Pohlman?

Explanation / Answer

Splitting stock does not change overall investors’ wealth; instead it splits just price.

1 stock splits in 3 stocks.

a:

Stock price after split = 48/3 = $16

b:

Number of shares after split = 100*3 = 300

c:

Investors’ wealth before split = 100*48 = $4800

Investors’ wealth after split = 300*16 = $4800

As said before, splitting stock does not change overall investors’ wealth.

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