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Question
XYZ Corporation has 400,000 shares of common stock outstanding, a P/E ratio of 8, and $500,000 available for common stockholders. The board of directors has just voted a 3-2 stock split.a. If you had 100 shares of stock before the split, how many shares will you have after the split?
b. What was the total value of your investment in XYZ stock before the split?
c. What should be the total value of your investment in XYZ stock after the split?
d. In view of your answers to (b) and (c) above, why would a firm's management want to have a stock split?
Answer
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