On December 31, Bell Company had 149,000 shares of $30 parvalue common stock iss

Question

On December 31, Bell Company had 149,000 shares of $30 parvalue common stockissued and outstanding. Onthis date, they split the stock 5:1.

1. How many shares of common stock will be outstanding after thestocksplit?
2. What is the new par value ofeach share of common stock after the stock split?

On December 31, Bell Company had 149,000 shares of $30 parvalue common stockissued and outstanding. Onthis date, they split the stock 5:1.

1. How many shares of common stock will be outstanding after thestocksplit?
2. What is the new par value ofeach share of common stock after the stock split?

Explanation / Answer

This is either badly worded or a trick question. Par valuehas nothing to do with the share price at which the stock istrading - it's most analogous to a cash surrender value. Soif a trick question, the par value remains $30/share, whatever theprice is at which the stock trades. A stock split of x:1 means that for every share you had, you nowhave x. The per-share price also drops proportionately(though not necessarily in real life, since there might be morepeople willing to buy small amounts of shares at the lower pricethan at the higher price). ANYWAY... 149,000 shares at $30 par value split 5:1 would mean you'd have 5 x149,000 shares after the split, or 745,000shares.The "par value"/stock price would be 1/5th ofwhat it was, or $6 per share. The total market cap of the company remainsunchanged. 149,000 x $30 = 745,000 x $6) =$4,470,000.

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